Alan Kohler on why Trump’s war hasn’t spooked Wall Street

In this episode of ABC News Daily, host Sam Hawley explores the paradox of Wall Street's record-breaking stock market performance amid escalating global tensions, particularly the ongoing war in Iran and its impact on fuel prices and inflation. Despite rising inflation—now at 4.6%—and mounting pressure for the Reserve Bank of Australia (RBA) to raise interest rates, global markets, especially in the US, remain buoyant. Finance expert Alan Kohler explains that this resilience is largely driven by an unprecedented boom in artificial intelligence (AI), with companies like Microsoft, Meta, Amazon, Google, and Oracle reporting massive profits and planning to spend nearly US$800 billion on AI this year. The AI surge is boosting productivity expectations across industries, leading analysts to upgrade profit forecasts and fueling investor confidence. Kohler acknowledges that while the war in Iran is causing real-world economic pain—through higher energy costs and inflation—the markets are effectively 'pretending' the conflict doesn't exist by focusing on AI's transformative potential. He also notes that markets may be relying on the long-standing 'moral hazard' belief that governments and central banks will always intervene during crises, as seen in past bailouts during the GFC and pandemic. However, Kohler cautions that if the Strait of Hormuz remains closed, a prolonged global recession could derail the AI boom, leading to a market crash. While he remains cautiously optimistic—'my glass is half full'—he warns that the current optimism may be misplaced if geopolitical risks escalate. Key takeaways include: AI is now a dominant force driving market performance, not just a speculative bubble; the disconnect between real-world inflation and stock market highs is real but rooted in AI-driven productivity gains; central banks face a tough balancing act between fighting inflation and avoiding recession; and the belief in government intervention (the 'Greenspan put' legacy) continues to shape market psychology. Kohler suggests that while the AI boom is historically significant and likely to endure, it is not immune to macroeconomic shocks, particularly those stemming from prolonged energy disruptions. The episode underscores the fragility of market confidence when geopolitical risks intersect with structural economic pressures.