Larry Kudlow

The U.S. stock market and world equity bourses are important measures of fear, hope, security, and the health of the world’s economy. And while you might not know it from today’s magnified headlines about war, terrorism, higher oil prices, and rising interest rates, the stock market message is one of reasonable hope, confidence, and optimism about the state of the world.

Could it also be that world stock markets are rallying as Israel and its freedom agenda advances toward a Hezbollah-free Lebanese border, highlighting a significant defeat not only of the thuggish and cowardly Hezbollah murderers, but their totalitarian backers in Syria and Iran?

At the close of business last Friday -- after another violent week in the Middle East -- Bloomberg chronicled the impressive performance of world stock markets: U.S. share prices had their best gain since November 2004; Canadian and European stocks had their top weekly performances all year; British and Brazilian equities rose for the second straight week; Asian stocks posted their strongest gain in over a month; Japan was up 3.5 percent; and India surged near 6 percent.

The wartime stock market is saying that things might be better than most people believe.

Think of it: On the world stage, there is more capitalism, free trade, and economic interconnectiveness (to use defense analyst Thomas Barnett’s term for bringing the worse-off countries online with the best-off nations) than ever before. Because of this, literally hundreds of millions of share-owning investors are voting daily on the great issues of war, peace, prosperity, and hope for the future. And their vote is optimistic.

Here at home, many groused about the 2.5 percent GDP report for the second quarter: Bears called it the first step into recession while bulls argued for a soft landing and an end to Fed rate hikes. But the whole debate may be misrepresenting a fundamentally strong economy. After all, GDP grew by 5.6 percent in the first quarter, making for a two-quarter trend of 4 percent growth. Over the last year, GDP is trending at 3.5 percent, which is pretty impressive for a fifth-year recovery buffeted by high gas prices, rising interest rates, and the uncertainties of war and terrorism. Since the June 2003 investor tax cuts, growth has averaged 4 percent.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.