Why markets are high despite war in the Middle East

What are markets smoking? I mean, thinking from Marketplace. I'm Sabree Beneshore in New York. There are signs the U.S. and Iran could return to the negotiating table in Islamabad, Pakistan this week. Vice President J.D. Vance is expected to head there today. Iran's government is reportedly prepared to send negotiators, but everything is still very uncertain. And the ceasefire ends Wednesday. Meanwhile, markets are close to all-time records. Ken Watret joins us to talk about it. He's vice president of global economics at S&P Global Market Intelligence. Ken, welcome. Thank you for having me. So there are hopes for Peace Talks this week. Oil prices, in response to all of this, have been up and down all over the place. Markets should keep on getting higher and hitting records. Can you make that make sense? Well, it is remarkable, this disconnect between the uncertainty over the conflict and all of its potential economic implications and the relative exuberance of risk assets. So we have the S&P 500 above its pre-conflict level. We've got major equity indexes in many economies approaching their pre-conflict levels. I guess one of the reasons why we could rationalize that is because there is a hope that there is a desire on both sides of the conflict to reach a resolution. And hopefully that will see some normalization of shipping routes in the Gulf. And at the same time, you know, we had very strong momentum in some equity markets prior to the conflict. You know, there's obviously an AI focus going on, which is providing some support. And at the same time, you know, the hope is probably that when we come out of this period of uncertainty, the inflationary implications of the shock will be relatively limited. Central banks will look through it and we'll go back to normal in terms of economic prospects. That all sounds a little complacent from where we sit. The ships that left the Strait of Hormuz before the war are finally arriving at their various destinations around the world which means the ships that would have left after are not like the ships are not showing up If the peace talks do not materialize, the ceasefire expires. What will that mean for the global energy supply? Are we kind of at a breaking point moment? Well, I think we're getting very close to that situation. I mean, our base case assumption, and obviously uncertainty is very high. We'll see, you know, limited traffic through the Strait of almost through April. So if it takes even longer to get to that normalization, then the likelihood is we're going to be living with persistently high energy prices and potential supply shortages for quite some time. And that's a really important issue because the more persistent the energy shock, the greater that risk of second round effects. And in turn, the greater the risk that central banks will become unnerved about the impact on inflation and potentially inflation expectations. And we could end up with tighter global financial conditions also leaning down on economic growth prospects. Ken Watret, Vice President of Global Economics at S&P Global Market Intelligence. Thank you so much. Thank you. Picture a product at the center of global supply chains, the ones that are being disrupted by the war, something that uses petroleum products like synthetic rubber, but also aluminum foil wrapping silicone, which is super energy intensive to make. If you guessed condoms, you would be correct. The world's largest producer of condoms, Malaysia-based Carex, says it is going to have to raise prices by 20%. ...and outbreiden of your company. With an advanced themes you can build your brand... ... marketing tools, let your products be opened... ...and integrate-to-release applications... allow time for starters and growing companies Both online personally and under the way Shopify is made for entrepreneurs like you jij Meld je aan voor je proefperiode van 1 euro per maand op shopify During the pandemic, a lot of people got into plants because plants are awesome. By 2023, Americans were spending $3,4 billion a year on indoor plants and related products. Today we check in with a couple of plant shop owners for our Economic Pulse series, where we take a look at the economy from all kinds of different perspectives. Kristen Summers and Ivan Martinez are the husband and wife co-owners of Tula Houseplant Shop in Greenpoint, Brooklyn. Welcome. Thank you. Hi. So are people buying as many plants as they used to? So it's kind of tricky. Yes, people were buying a tremendous amount of plants during the pandemic. I'm sure a furniture company would say the same thing. But there were many plant shops that also opened and expanded during this time. I would say many plant shops have since closed. There's not as many people buying, but there's also not as much competition. So we're catching it. Well, I'm glad to hear that. As a proud plant dad, I'm very thrilled to hear that people are still into plants. But have you had to adapt your business model at all? Yeah. During the pandemic, a lot of people became collectors. And I think since then, the rarity market of the plants kind of dwindled. And now people are back to finding plants that they love and plants that are right for their apartments. We were in the space back then where we just wanted to find the rarest cacti and alocasia and things like that. But now we're in the market of like, what's the right plant for people? Low light, high light, you know, we still dabble in the rarity, but it's more about just now people wanting the right plant for their apartment and not collecting like hundreds and hundreds of them, you know? Right. And then furthermore, yes, we have changed our business model and we've evolved it. We do a lot more installations and maintenance outside of retail. So we have a whole service arm of our business, you know, and we've really pushed that since the pandemic. I mean, design and installation, that sounds like a whole different whole new business Yes Yes it sure is Where are you seeing the demand for that come from Is it like businesses or is it like people with homes It both And I would say that we seeing a lot of the economic fluctuations in this part of our business, particularly. I would say that last year there was a lot more hesitancy in the commercial industry, whereas there was a big influx in the residential inquiries. this year, at least from what we've seen since spring has sprung, a lot of residential inquiries and the commercial inquiries are starting to trickle in a little bit faster than last year. So we're going to wait and see what happens, especially where we are with the economy. You never really know. Kristen Summers and Ivan Martinez run Tula House, a plant shop in Greenpoint, Brooklyn. Thank you both so much. Thank you. Thank you. Real pleasure. The plants I got during the pandemic, FYI, are mostly still alive. Mostly. In New York, I'm Sabree Beneshore with the Marketplace Morning Report. From APM American Public Media. Hey, David Brancaccio here. I hope you're well and that your passport is up to date because I am hosting a trip to Italy this fall. and you, you are invited. Stay at a world-class Tuscan villa and step into the world of the Medici, the formidable family whose influence and power helped give rise to the Renaissance and the art we still celebrate today, not to mention the banking system. We're going to visit the world's oldest bank, swim in the thermal spa waters in Monte Catini, and take in the art of the Uffizi. All of this, and then we'll try to put it all into context with great conversation over even better meals and wine tasting. Please join me and know this, buying into this trip will provide essential support for public media. Discover more about this fall's Tuscany adventure at marketplace.org slash travel to reserve your spot today. That's marketplace.org slash travel.