The benchmark US equity indices surged to new territory entering price discovery, reflecting a market that appears to be looking past immediate geopolitical risks in favour of potential de-escalation and corporate strength.
On Wednesday the S&P 500 closed 0.8% higher at 7,022 points, up on the day and surpassing its previous peak from January of this year.
The S&P 500 is now 11% higher since it bottomed on 30 March and after it first dropped 9% during last month.
The Nasdaq Composite also posted a record, rising 1.6% to over 24,000 points while the Dow Jones Industrial Average edged 0.15% lower and continues significantly below its all-time high.
The advance comes despite persistent headwinds.
Shipping through the Strait of Hormuz, a critical chokepoint for roughly one-fifth of the global oil supply, has been severely disrupted since late February following Iranian actions and a subsequent US naval blockade.
Traffic has dropped sharply, with Iran declaring the strait closed to vessels linked to the US, Israel and their allies.
The US Central Command also confirmed its blockade of Iranian ports took full effect earlier this week, stating that “ten vessels have now been turned around and ZERO ships have broken through since the start of the US blockade on Monday”.
Oil prices, while easing in the last two weeks, remain elevated.
At the time of writing, Brent crude stands at around $96.5 per barrel and WTI at $92.5, still well above pre-war levels and contributing to inflationary concerns.
The International Monetary Fund has responded by lowering its global growth outlook. In its latest World Economic Outlook, released on Monday, the IMF cut the 2026 forecast to 3.1% from 3.3% previously projected, citing energy price spikes and supply disruptions.
Headline inflation is now seen at 4.4% for the year, under a reference scenario assuming a short-lived conflict, with risks of even weaker growth and higher prices if tensions escalate and prolong.
The modest decline in energy prices followed reports that the two-week ceasefire is holding and that fresh talks between the US and Iran could resume soon.
US President Donald Trump also indicated that negotiations for lasting peace might restart by the end of the week.
Investors appear to be pricing in an eventual reopening of the Strait of Hormuz and a contained negative impact of the war in general.
Speaking to Euronews, Alan McIntosh, chief investment officer of Quilter Cheviot Europe, explained that “although the first round of talks led to no agreement, a likely extension of the ceasefire gives optimism that an early resolution can be reached”.
“Assuming a fairly swift end to hostilities and a resumption of oil shipments, the economic damage to global inflation and growth should be fairly limited,” he added.
Why US indices defy the odds
Analysts point to several factors behind the market resilience.
Hopes of a swift end to hostilities have encouraged risk-taking, while corporate America is showing strength. Bank executives highlighted a strong US consumer and a healthy pipeline for deals and initial public offerings.
Earnings expectations for the first quarter have been revised higher, with S&P 500 companies now forecast to report combined profits of over $605 billion (€513bn), up from earlier estimates.
Tech shares, particularly those linked to AI, provided additional support. The Nasdaq’s outsized gain reflected renewed enthusiasm for growth-oriented stocks even as broader economic projections softened.
McIntosh told Euronews that “the capital spending boost relating to AI shows no sign of slowing down so this continues to support US economic growth. We have just started the US quarterly results season and so far there is limited evidence of a negative impact from the current Middle East conflict”.
The indices also include defence companies that have all performed well with the war in the backdrop pushing governments, in particular the US, to increase military budgets.
History also offers context for the current rebound. In past US-involved wars, equity markets have frequently experienced short-term volatility followed by recovery and gains.
During the 2003 Iraq War, for example, the S&P 500 rose over 25% in the first full year after the invasion began.
The Gulf War of 1990-1991 saw an initial 11% decline in the index, but a strong relief rally followed the swift coalition victory, delivering positive returns in the subsequent year.
Similar patterns emerged in the Korean War and Vietnam War eras, where stocks posted solid long-term advances despite prolonged uncertainty.
Data compiled by the Royal Bank of Canada and other sources indicate that, across multiple conflicts, equities rose in the first year of hostilities around 60% of the time.
Markets have tended to focus on eventual outcomes rather than immediate shocks, rewarding resolution and economic adaptability. The latest record for the S&P 500 and the Nasdaq underscore this enduring pattern.
While risks remain if the Iran conflict worsens, investors are currently betting that diplomacy and corporate fundamentals will prevail.