The U.S.-Iran war continues with no sign of a peace deal, yet the stock market has rebounded strongly, reaching all-time highs. On Monday, the S&P 500 closed above 7,400 for the first time ever, marking a roughly 17% recovery from its March low of around 6,300 in just over a month [1]. This rally comes despite oil prices climbing above $120 a barrel at their peak and remaining above $100, with gas prices surging above $4.50 a gallon nationally and exceeding $5 in many states [1].
The initial market reaction to the U.S. strike on Tehran on February 28 saw the S&P 500 drop about 8% from peak to trough, which did not reach the threshold for a correction (defined as a fall greater than 10% and less than 20%) [1]. Despite ongoing supply chain disruptions from the blockage of the Strait of Hormuz, investors have attributed the market's resilience to the hope that these disruptions will be temporary and manageable. However, with the conflict entering its third month and stocks continuing to rally, analysts point to more fundamental reasons for the market's strength [1].
Key drivers behind the market's performance include a resilient U.S. economy that is less reliant on oil than in the past, strong company margins with energy costs constituting only a small portion of expenses, and the continued dominance of artificial intelligence and large tech companies in powering S&P 500 earnings [1]. According to a Trivariate Research review of 1,465 earnings transcripts since the start of March, only 10% of the entire market cap has been significantly affected by the oil price surge, suggesting limited impact on most U.S. companies [1].
Experts note that even if the Strait of Hormuz were to reopen immediately, the effects of the disruption would linger, as it would take weeks for oil shipments to reach their destinations and oil prices are not expected to return to pre-crisis levels soon. This means businesses and consumers will continue to face higher pricing pressures for some time [1].
CONCLUSION
Despite the ongoing U.S.-Iran conflict and elevated oil and gas prices, the S&P 500 has demonstrated remarkable resilience, reaching record highs. The market's strength is attributed to fundamental factors such as a less oil-dependent economy and robust tech sector earnings. While pricing pressures are expected to persist, most U.S. companies appear insulated from the worst impacts, supporting continued optimism among investors.