Why Stocks Keep Rising Despite the U.S.-Iran War

CNBC reported Tuesday that the S&P 500 has surged to record territory above 7,400, even as the U.S.-Iran conflict stretches into its third month. Analysts say three structural factors are driving the stock market rally, not blind investor optimism.

A War Shock That Barely Dented Equities

When the United States launched its first strikes on Tehran on February 28, the S&P 500 fell only around 8% from peak to trough. That decline never crossed the 10% threshold that defines a formal correction. The index has since rebounded roughly 17% from its March lows near 6,300. Oil has spiked above $120 per barrel at its peak and remains above $100. Pump prices have surged past $4.50 per gallon nationally. Yet equities kept climbing.

Most Companies Are Barely Affected

Research firm Trivariate analyzed 1,465 corporate earnings transcripts filed since March. It found that only around 10% of total U.S. market capitalization expects a negative or mixed impact from the conflict. The firm noted that figure likely overstates the true damage. Energy represents a relatively small input cost for most large American businesses. That insulation matters greatly for index-level performance. Trivariate did flag consumer discretionary names as a sector to watch closely. Certain software companies facing multiple compression were also flagged as risks.

Background: The U.S. Economy and Oil

The U.S. economy today relies far less on oil than it did in previous decades. Domestic energy production has expanded dramatically since the early 2000s. That structural shift reduces the economy-wide pain from oil price shocks. Even if the Strait of Hormuz reopens, elevated oil prices will likely persist for some time. Ships that cleared the passage will still take weeks to reach North American or European ports.

AI Earnings Power the Index Higher

The third pillar of the rally is the extraordinary earnings dominance of the largest technology companies. Apollo Chief Economist Torsten Slok noted that the ten biggest S&P 500 companies now generate roughly 34% of the index’s total profits, up from just 17% in 1996. JPMorgan’s trading desk reported last week that Magnificent Seven earnings are outpacing the remaining 493 index members by more than 40%. That gap has not been seen since 2014. Artificial intelligence demand is fueling these results, keeping the broader index buoyant even as pockets of the market struggle under the weight of the conflict.

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