What's going on?

Stocks may have been shaken by recent US-Iran tensions, but they�ve not been too beaten down. Maybe it’s because investors are expecting the US Federal Reserve (the Fed) to step in and cushion any major slides…

What does this mean?

On Tuesday, US stocks flipped between rising slightly and falling slightly, suggesting investors are now less concerned about the immediate effects of rising oil prices. American energy prices don�t appear to have moved much: the country is the world�s largest oil producer, after all, and it extracts more than it needs.

We�re standing on slippery ground nevertheless: a rising stock market but falling company profit and economic growth forecasts is a recipe for trouble. Stocks� valuations will appear more expensive, and cautious investors might begin selling. For now, investors who�ve kept buying are probably relying on the almighty Fed…

Why should I care?

For markets: The hero investors deserve.
According to the Fed�s last update, US interest rates won�t move down this year (or up, for that matter) if the economy grows as expected. But investors expect there�ll be at least one cut in addition to the Fed�s ongoing support to the US�s super short-term borrowing market. That would lower borrowing costs and should encourage spending, boosting corporate profit and economic growth � and, by extension, stock prices (all else equal). If it happens, that is.

The bigger picture: Deficit schmeficit.
Fresh survey data out on Tuesday showed activity in the US services sector � which represents 80% of its economy � rose by more than expected in December. And the country�s �trade deficit� � the difference between what it spends on foreign goods and what other countries spend on American wares � fell to its lowest in three years. The recent US-China�trade deal�should also narrow the gap further, boosting economic growth. That�s helpful for the US economy, but perhaps less so for rate cut-seeking investors.