...this is probably because Trump's threats is all bark and no bite.
....markets learnt the hard way not to take Trump too seriously. Investors’ new theory is nothing ever happens. It’s dumb and genius
For all the incredible drama we’ve seen on the world stage, markets are back near their record levels. Are those who spout this hypothesis actually right?
Jun 27, 2025 – 9.16am
Hagai M Segal has had a big few weeks.
The views of the geopolitical risk consultant, who also teaches at New York University and Oxford, have been much in demand after the Middle East exploded into conflict. The sheer speed of events has only added to the anxiety of the investors who’ve sought out his view, including the select group of UBS Australia clients he spoke with on Thursday evening.
“As Iranian rockets were rushing towards Qatar, there were some so-called experts who were already saying that World War III was starting,” Segal says. “Yet four hours later, we had a ceasefire between Israel and Iran. That’s just how quick and how unpredictable things can be at the moment.”
Of course, it wasn’t just geopolitical experts struggling to process the events of last week. Investors and market strategists braced for the worst – oil to surge, equity markets to plunge – only to see, well, nothing. The S&P 500 and the ASX 200 essentially shrugged and resumed their upwards grind back towards record levels.
It’s more evidence supporting a new market theory that’s achieved meme status as it gains popularity among younger investors in the US: “Nothing ever happens”.
The idea is simple. Every time a supposedly market-shifting, world-shaking event arrives, its impact quickly fizzles out.
The Russia-Ukraine war? A temporary blip. The collapse of Silicon Valley Bank and Credit Suisse? Merely a week of turmoil. Bond market chaos? The carry trade blowing up? The British gilts crisis? Meh. ‘Investors ignore world-changing news. Rightly.’
The theory got even more attention last week, when The Economist columnist Mike Bird brought it into the mainstream with a piece titled “Investors ignore world-changing news. Rightly.”
All of this feels a bit silly given Wall Street fell almost 20 per cent between late February and mid-April, after US President Donald Trump announced tariffs on America’s trading partners. Clearly, something happened then.
But the speed of the recovery has been stunning, and, with the end of the financial year approaching, the drama of this year won’t really show up in the returns of equity investors. The ASX 200 will deliver about 10 per cent, while the S&P 500 will do about 11.5 per cent. Who wouldn’t take that?
For a columnist whose very job is to examine and explain the big and little moves in markets, the economy, politics and geopolitics, this idea that nothing ever happens is an anathema. But it’s hard to argue with the evidence of the past few years, and particularly the past few months.
So, does the theory stack up in any way? And does it suggest markets are somehow broken?
Bird’s piece in The Economist referenced a study that showed, contrary to what we might expect, market volatility was actually much lower on days when apparently market-shaking news occurred. Perhaps, Bird quite reasonably argued, this is explained by the fact that such events are extremely hard to price and/or hedge against.
Another explanation might be the dramatic changes in the structure of markets.
Arif Husain oversees $US305 billion ($466 billion) as global head of fixed income at the $US1.62 trillion funds management giant T Rowe Price. He told Chanticleer during a visit to Melbourne this week that the rise of passive investing and algorithmic trading, the build-up of retail investing, and the shift from public to private markets mean markets function very differently from a decade ago.
‘Too desensitised to news’
We can certainly see this in the Australian market. Here, the influence of the active stock picker trying to invest by studying traditional stock fundamentals has been blunted by the embrace of passive strategies, particularly by the gargantuan superannuation sector.
Throw in the fact that investors have been conditioned to buy the dip – a strategy that worked brilliantly for almost three years – and you get a market that either quickly bounces after any setback, or doesn’t meaningfully sell off at all.
“The market has become too desensitised to news, and is completely underestimating … tail risks more broadly,” Husain says.
Or perhaps they’re not. Macquarie strategist Viktor Shvets has long argued that the financialisation of developed economies and huge debt levels held by governments and the private sector mean risk has increasingly been pushed out of financial markets and into other areas of society, such as politics, geopolitics, climate and healthcare.
That’s not to say investors won’t get rocked by extreme volatility, as the world whipsaws from periods of inflation to sudden deterioration in economic growth. But Shvets says the bubble surrounding financial markets has become so big that it’s simply not in the interests of governments or central banks to let it deflate, and so they respond to every little crisis with fiscal and monetary stimulus.
In addition, the tools central banks and governments have to deal with moments of crisis have developed so much since the GFC that regulators and central bankers can respond quickly to dislocations.
But, Shvets says, there’s a price to pay for all this. The bigger the bubble gets, the worse inequality becomes and the more vulnerable the world becomes to periods of inflationary pressure.
This stokes the sort of political polarisation and geopolitical tension we are seeing now – insurrection at the US Capitol building, masked agents ripping immigrants off the streets of Los Angeles, tariff barriers and capital controls, deglobalisation, government debt spiralling out of control, and central bankers being asked to put politics before independence.
Eventually, something breaks.
But we’re not there yet, according to Segal, who says investors’ response to the most recent crisis in Iran is an important reminder of exactly this. “The markets are rarely wrong.”
First, history is on the side of investors who look past apparently earth-shattering events.
“Very rarely in history has geopolitics caused long-term downturns in the markets, major multi-year dips,” Segal says. “It’s happened really only twice in 125 years. Media focus on geopolitical risk may feel extreme, but measures of geopolitical risk are only actually slightly above the long-term base.” Status quo maintained
But most importantly, markets may be rightly assessing that the post-World War II world order is actually holding.
Segal’s biggest geopolitical worry has long been the European Union splitting apart. But the centre held at last year’s elections and Donald Trump’s demand that Europe spend more on defence may have brought the union closer together – even if that ironically means placing a giant bet on German rearmament.
For all of Trump’s talk of changing the global order, Segal points to the recent G7 and NATO summits as proof that other nations are starting to work out how to deal with him. Trump came away from both events much more supportive of the Western consensus than he had previously appeared to be.
Even in the Middle East, Segal asks, what’s really changed? The attacks on Iran didn’t lead to a wider Middle East conflict. Although Iran is militarily weaker than it has been for some time, the regime has not been displaced and is consolidating its power with a brutal domestic crackdown. In five or 10 years, its strength may be restored.
“The world has definitely got more complicated, and the risks of a wider conflict grow, but we’re still in a situation where the status quo is under great strain, but is still holding.”
That’s not nothing. And as Segal says, investors might well believe that if we can get through a period such as we’ve seen in the past few weeks relatively unscathed, the potential for conditions to improve is actually quite bullish. None of this matters until it does
Of course, the problem with the “nothing ever happens” mantra is that it risks dismissing or underpricing these risks entirely. None of this matters until it does. And with markets historially expensive, the price of complaceny may be high.
Geopolitical risk might not be elevated on a historical basis, but it doesn’t mean one of those multi-year market-wrecking episodes is impossible. Those risks that Shvets says we’ve pushed out of financial markets haven’t gone away.
The potential for a government debt crisis to blow up bond markets will get bigger as polarised societies demand that the government spend away their problems. Policy decisions taken in this environment will also keep playing out. Just one example is Trump’s immigration crackdown, which could eventually choke off labour supply and push up wages, inflation and interest rates.
But for all that, we shouldn’t dismiss the “nothing ever happens” crowd completely. The adage that time in the market is much more important than timing the market still rings true. Assuming everything is noise, even at risk of ignoring the signal, may not be the worst approach a long-term investor can take.
Perhaps there’s a middle ground. Segal suggests investors don’t ignore geopolitics or macro risks, but “get comfortable with the discomfort” and put these events into context. For Shvets, this is an environment where investors can use a tried-and-true strategy.
“We have been recommending tuning out noise and focusing on stock picking based on secular and productivity drivers, including thematics, while assuming that macro remains not just volatile, but unpredictable and inestimable.”
