Another day. Another conflict. Red lines on the chart. Back in green a few weeks later.
Looks like a familiar pattern. Are balance sheets, stock markets and the headlines about conflicts really disconnected? Are markets numb to geopolitics?
The First Principles
The basic logic tells us that stock prices must reflect the company's earnings, present and future, more precisely, the future. When it comes to geopolitics, what we know is that markets cannot price every possible event. Therefore, they price a mechanism. Rather than reacting to each headline, they rely on a set of assumptions about how shocks will be handled and the impact on the company's profitability.
I believe that markets have internalised a handful of assumptions over the past couple of decades. Such beliefs neither remove risk nor guarantee stability. But they do explain why markets appear unusually calm in a world that feels anything but.
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Assumption One: Governments & Central Banks Will Always Be There
Over the past few decades, central banks and governments have supported financial markets through rate cuts, sovereign guarantees, quantitative easing, liquidity injections, and fiscal stimulus. Investors have seen that they backstop in times of stress and stabilise the asset prices.
Past crises have even made institutions stronger. Take emerging markets. They have inflation-targeting monetary policies, proactive central banks, flexible exchange rates, and deeper bond markets than a couple of decades ago. Their economies stood strong during pandemics, commodity price shocks, and US tariff hikes. They haven't seen major crises and defaults, as seen in earlier episodes.
Markets now assume that geopolitical shocks are less of a threat to earnings. Instead, they see them as an opportunity to buy the dip, as if someone will support the economy.
Assumption Two: Firms Adapt Superfast
Supply chains have turned out to be tougher than many feared. A study by the Economist shows that supply chain failure rates have fallen over the past four decades. And if at all certain things take a hit, the pressures ease out within a few months.
This is because supply chains have become far more professional and adaptive. Companies have diversified suppliers, reduced reliance on single countries, rerouted shipments, swapped inputs, and built more redundancy. Therefore, supply chain disruptions are not seen as a system-wide threat.
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Assumption Three: Energy Is No Longer A Chokepoint
The world doesn't rely on oil as much as it used to, thanks to more renewable energy sources and diversified suppliers. That means energy shocks aren't as big or as lasting as they were back in the 1970s.
This could have been a simple fact before the war in Iran. But places like the Strait of Hormuz show that we haven't moved on yet. If something happens at one of these key routes, energy prices will spike immediately. Yes, energy is less important than before, but it's not so unimportant that markets can ignore it.
Assumption Four: Services Drive Today's World
Large economies today are driven by services, not factories. Therefore, trade restrictions hit goods first. Employment and output in the manufacturing sector have been declining for years. Between 2019 and 2025, manufacturing jobs fell across most of the world, except Africa.
Markets understand this shift. Major stock indices are now dominated by service-heavy sectors, which are less exposed to trade barriers and supply disruptions.
Behavioural Complacency Has Become Endogenous
All these assumptions show up in how investors behave. Time and again, they see a similar pattern playing out. A geopolitical or economic shock makes headlines, markets fall, but recover quickly.
After seeing this happen repeatedly, the sense of urgency fades. Investors perceive problems as temporary and risks as manageable. They get ready to take on higher risks without enough safety buffers.
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Final Take
The numbness, therefore, has become a habit. The problem is that the assumptions we discussed above may falter, one by one, someday.
Some investors like Warren Buffett have piled on cash quietly, preparing for extreme scenarios. But most of them treat geopolitics as background noise, largely because earnings haven't taken a hit yet. That's the real blind spot. The risk is when numbness slips into dumbness because once confidence breaks, adjustment isn't gradual. It's sudden.
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