Despite dramatic headlines, markets resume growth trajectory

Business Times

5 days ago

[SINGAPORE] Recent world news headlines remind me of Michelle Yeoh's award-winning movie Everything Everywhere All at Once, in which multiple events happen in parallel, creating different possibilities.
Geopolitical trade tensions are happening alongside ongoing physical conflict between nations, while populations are feeling the effects of climate change as natural disasters strike communities unexpectedly and seemingly more often.
The state of the world feels increasingly volatile, uncertain, complex and ambiguous, as every event threatens to upend financial markets and rattle the global economy.
The reality, though, is that financial market movements are painting a more benign story underneath the dramatic headlines, especially when compared against the near-term impact of major historical events.
Today, the S&P 500 is at an all-time high, rallying more than 20 per cent since its drop in April and surpassing its last peak in February.
The continued growth in the market despite global events echoes the age-old phrase 'nothing ever happens', an expression originating from the depths of the online forum 4Chan to describe the lack of significant international developments in modern history. This phrase continues to be a popular meme among young investors today, when analysing the market impact of recent geopolitical tensions.
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A market apathetic to international events
History has shown that shocks from international developments cause knee-jerk reactions in the market, but their effects quickly taper off and markets continue their growth trajectory.
Take, for example, the Covid-19 pandemic in 2020, when countries were locked down and travel was limited for an extended period. Despite that, the S&P 500 fell 5.9 per cent in March 2020 but rebounded 12.1 per cent in three months, reversing its dive and even gaining some ground.
The recent India-Pakistan skirmish is another case in point. Five days after the first conflict, markets recovered with the S&P 500 rising 0.2 per cent and 30 days after, markets rose 5.7 per cent.
The reality is that since World War II, less than 10 per cent of geopolitical shocks have significantly affected markets, with such impact from most global events being very short term.
Factors driving market apathy
Firstly, retail investors piling into stocks are driving markets. In the first half of 2025, they poured a record US$150 billion into US mutual funds and exchange-traded funds (ETFs), while investor holdings of US index futures were near a three-year high.
Retail inflows were the highest in over a decade, indicative of investors' unwavering confidence in the market.
These funds flows reflected investors rebuilding their positions after a reduction in the most extreme tariff risks, and their confidence in the market after adopters and enablers of artificial intelligence indicated a strong outlook in their first-quarter results.
Secondly, globalisation has enabled technology and innovation to travel beyond borders, allowing supply chains to become diversified as countries invest into their capabilities to become self-sufficient.
Countries are no longer isolated in their technological progress. The globally connected innovation ecosystem enables knowledge sharing that accelerates development and fosters competition.
This diffusion of technology has directly impacted global supply chains, making them more diverse, adaptive and resilient, while allowing nations to localise segments of production more readily than in the past.
Countries are increasingly prioritising self-sufficiency in today's multipolar world, especially as more nationalistic tendencies emerge.
These factors effectively cushion today's financial markets and shorten impact from international events. As a result, investors who stayed calm through these developments and continued investing instead of divesting their portfolios benefitted as markets settled down and continued to climb.
What investors can do
Does this mean that investors can fully ignore these events and stick with their investment strategy regardless of what happens? I don't think so.
Instead, investors need to review their portfolios regularly to ensure it fits their financial needs and goals. They need to ensure their portfolios are diversified, and underlying holdings meet quality criteria. While diversification does not ensure profit or protection against loss, there are some strategies that investors can employ to ensure portfolio resilience in volatile times.
Suitable investors may want to consider asset classes that aim to reduce correlations to markets, such as alternative investments in the form of market-neutral funds, multi-strategy hedge funds, relative value arbitrage funds and private equity funds investing in key infrastructure assets.
However, it is also important to be aware that investing in alternative investments is intended for experienced and sophisticated investors who are willing to bear the risks of the investment.
Having different asset types within a portfolio works well as they respond differently to market shocks and developments.
Geographic diversification also makes sense, as emerging markets in Asia and parts of Europe outperform.
Portfolio diversification will also enable investors to weather political leadership changes. Political transitions and changes – especially during elections or regime shifts – can lead to new fiscal and tax policies, as well as shifts in world trade orders and regulations.
Markets often react sharply to these changes even if the impact may be transient. Some shifts may cause more lasting impact to portfolios, so investors will do well to not be overly exposed to any country or region, and expand beyond their bases so as not to double-down on domestic risks.
Prioritising companies with strong balance sheets, consistent earnings and low debt also is a defensive sleeve in investors' portfolios.
Investing in long-term structural themes that endure beyond short-term volatility is also useful as these themes can offer growth even in weak macro environments, and provide returns in the medium term.
Still, many traps remain for investors, and a credible management team can help them identify early winners and navigate the market.
Regularly occurring geopolitical turmoil makes investing feel risky and unstable, but history tells us that the market always recovers and stabilises.
The key for investors is to have a portfolio that will weather uncertain times, and allow them to hold out until the market recovers. That way, they can still rest easy while staying invested the next time everything everywhere occurs all at once.
The writer is the Asia South head of client investment advisory and market executive Singapore, Citi Private Bank