For a country in literal dire straits and possibly at its lowest point in a long time, the stock market has so far stood the storm. The other way to look at the benchmark KSE-100 index performance is that despite stellar earning season, the index has barely moved a needle, barring a short bull run that did not last beyond three weeks. Year-to-date, the 100 index has returned a little over 1 percent.

Three of the five months in the calendar year have returned negative yields – but the fall has not been spectacular. It may also be that the stock market does not draw the same interest from investors as it did a year or two or ten ago. The volumes traded at the bourse’s All-Share index have thinned to 160 million per day – nearly half the 10-year average, and two-thirds of the same period a year ago.

The earnings multiples are at a multiyear lowfor almost the entire suite of sectors. Only that the confidence of stakeholders in the economy is also at a record low – and the low multiples may mean nothing in terms of near future performance of the PSX indices. Other than the current account (hardly a silver lining) all macro indicators have turned for the worse – and the worst may still have not come.

Two factors that hold key to what direction that stock indices take are political battleground and the IMF. The IMF deal is ending this month and the much sought after 9th review is nowhere in sight. Recall that the previous rally was pinned on the hopes of IMF program revival as the talks had concluded between the two teams. The board approval can still come – and if it does – expect a rally.

But the budget is also around the corner and the government finds itself between a rock and a hard place for the umpteenth time. Should they go for a rather populist budget that would be the final blow to any chances of IMF revival. Should the budget be a moderate one, which would mean another round of fresh taxes across the board – and could possibly keep the index under pressure.

Then there is the small matter of interest rates – which are supposed to be in positive territory in real terms. The chances of that happening are slim, but the gap is so big that further tightening cannot be ruled out as inflation promises to stay elevated (the impact of another imminent currency depreciation round is yet to be felt).

Finally, on the political front –while the heat remains high, the picture may well be getting clearer. It is becoming increasingly clear a certain political party will be kept on the fringes with a much-reduced street power or the ability to disrupt daily affairs. Elections may or may not happen in 2023, but the uncertainty seems to be dying, even if it comes at the cost of democratic norms. That usually means good news for the stock market.