The nearly nihilistic market rally

Markets have often shrugged off geopolitical stress—North Korean missile strikes, clashes in the Middle East—but the gap between what’s happening in the world and in the market seems extreme even by those standards. Analysts note that a year’s earnings doesn’t matter much to a company’s valuation under a discounted cash flow model. As long as earnings bounce back next year—or even the year after—a likely lower-for-longer interest rate is enough to justify gravity-defying stock markets.

So it matters a great deal, to the exclusion of almost everything else, that the rebound is indeed relatively quick. If the first stage of the rebound was about the realization that central banks would take extraordinary measures to prevent market distress and widespread defaults, the second hinges on the ability of policy makers to engineer a rapid rebound within a year or so, largely with fiscal policy.