S&P 500 and Nasdaq stopped their run as peace talks linger.

Markets at a rare crossroads

The S&P 500 and the Nasdaq hit fresh records this week, only to show signs of hesitation as investors wait for a durable peace agreement in the Middle East. The S&P 500 closed at 7,023, while the Nasdaq climbed to 24,016 and extended an 11-day winning streak, market data shows. The Dow Jones Industrial Average however slipped, falling about 72 points on Wednesday.

Traders drove stocks to fresh highs because many expect the conflict to calm and corporate profits — especially in tech — to hold up. Still, the underlying geopolitical uncertainty — including a conditional two-week ceasefire and stalled diplomacy — has injected a pause into the rally.

"The stock market isn't trying to price what's happening today," said Joe Seydl, senior markets economist at J.P. Morgan Private Bank. "The stock market is always trying to price what the world is going to look like six to 12 months from now." His view captures how investors are weighing a short-term shock against longer-term earnings and growth expectations.

Why records came first

Stocks had plunged early in the conflict. The S&P fell roughly 8% from the start of hostilities on Feb. 28 to a low at the end of March.

The rebound erased those losses and turned that selloff into a rally that produced consecutive record closes.

Some of the rally comes from the belief that the spike in oil and the shipping snarls are short-lived, and that company earnings won't suffer enough to derail markets. Strong corporate results so far this quarter have given investors cover. Bank of America reported first-quarter net income of $8.6 billion, a 17% gain from a year earlier. Several other large banks also posted better-than-expected quarterly results, and that helped shore up confidence in financial sector balance sheets.

Analysts also note that corporate earnings and consumer activity have shown resilience. "It's been encouraging to hear Bank of America, Wells Fargo, JPMorgan, all of them saying that the underlying economy, the economic activity on the consumer and on the corporate front, has been pretty resilient," said Adam Crisafulli, head of Vital Knowledge.

Geopolitics keeps investors cautious

At the same time, the conflict has produced one of the largest oil-supply disruptions in modern history. Iran effectively choked tanker traffic through the Strait of Hormuz — the maritime corridor through which roughly one-fifth of the world's oil and gas moves. The blockade pushed oil sharply higher in March, raising the odds that inflation could get a fresh lift.

A two-week ceasefire reached on April 7 gave markets a momentary sigh of relief. But the pause was fragile. U.S. And Iranian officials have accused each other of violating terms, and negotiators haven't produced a full peace accord as the ceasefire approached its scheduled end. Vice President JD Vance said U.S. Officials left peace talks in Pakistan after the Iranian delegation declined to agree to U.S. Demands on nuclear development, adding to doubts about a quick resolution.

Investors are now watching whether the Strait of Hormuz reopens and whether shipping can return to normal levels. Scott Wren, senior global market strategist at Wells Fargo Investment Institute, expects the conflict to continue for weeks rather than months, and he says markets are betting the chokepoint will reopen soon.

Risk and reward on thin ice

Now that indexes sit near record highs, there's less room for mistakes — a bad headline can move prices fast. That means headlines about diplomacy, military strikes, or supply-chain disruptions can move prices sharply. Market participants are betting the near-term economic hit will be modest and that strong corporate profits will keep stocks afloat. If that view proves wrong, volatility could spike.

"Markets have absorbed a surge in oil prices and ongoing geopolitical strain without derailing earnings expectations," wrote Nigel Green, chief executive officer of the financial firm deVere Group, in commentary distributed to clients. His point echoes much of the recent market action: higher commodity costs haven't yet translated into a broad earnings shock.

Still, skeptics note the rally depends on a continued improvement in shipping and energy conditions and on the next round of corporate results. Tech giants including Alphabet, Amazon, Apple and Microsoft are scheduled to report earnings next week, an event that could either reinforce the bull case or test it.

What traders are watching next

Market participants say the immediate focus is on diplomacy and the ceasefire's fate. If negotiators produce a lasting deal, the market's uplift could extend. If talks break down, the earlier selloff in late March offers a reminder of how quickly sentiment can reverse.

Other signal points include the direction of oil prices, incoming inflation data and the next set of earnings from large-cap U.S. Companies. The interplay between resilient corporate profits and persistent geopolitical risk will likely dictate whether traders keep adding to positions or step back.

Mark Zandi, chief economist at Moody's Analytics, noted that the market's resilience reflects faith in a diplomatic off-ramp. "The market has remained very resilient in the face of the war and has rallied strongly on the prospect that it will be resolved," he said. But he added that the bounce is based on expectations rather than present-day conditions.

For now, the rally has paused. Indexes are near records, but without supporting data on trading volumes or breadth we can't say investors are 'holding back' — the sources only show caution, not the specific market internals. They want to see a clear path to lower geopolitical risk before committing at higher prices.

That restraint is what separates a steady climb from a blow-off top. Traders are probing for clarity. They're watching whether diplomacy produces a binding agreement, whether oil and shipping normalize, and whether upcoming earnings confirm the stronger economic picture priced into equities.

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"I feel like it's becoming the consensus view that this will be resolved," said Adam Crisafulli, head of Vital Knowledge.