U.S. stocks shrugged off the Iran conflict as the S&P 500 closed at a record high, rewarding investors who stayed invested. Analysts point to upward earnings revisions and a valuation reset, while a fragile ceasefire and a pullback in oil from wartime highs eased immediate selling pressure.
Markets recovered despite the conflict
After a sharp sell-off when the Iran conflict erupted, U.S. stocks not only recovered but reached fresh highs. The S&P 500 erased wartime losses and finished the most recent session at a record high, according to market tallies. The late-March dip prompted some panic selling but ultimately rewarded patient holders.
Investors and strategists point to two core anchors behind the rebound:
- Corporate profits: companies are delivering profit prospects that justify higher prices.
- Investor appetite: buyers have returned as earnings expectations improved.
Earnings upgrades and a valuation reset
Wall Street’s earnings picture has brightened. Sell-side analysts tracked by FactSet have revised profit forecasts upward across many firms, and firms including Deutsche Bank and Barclays have raised estimates. Those upgrades have helped lower forward price-to-earnings ratios even as prices climbed.
That mix—rising profit expectations alongside a lower forward P/E because earnings estimates grew—left sectors such as technology looking more attractively valued than immediately after the sell-off. Bloomberg reporting showed the forward P/E for the Nasdaq 100 fell during the pullback and had not fully returned, a dynamic traders used to justify buying tech on dips.
Investment banks have also weighed in. Research from firms including Goldman Sachs advanced a buy-the-dip case for selected tech names, and portfolio managers who sold early in March have told clients that the earnings-driven rebound justifies re-entering positions.
Geopolitics eased but risks remain
Fear around the Iran conflict helped fuel the initial rout as oil prices jumped amid Strait of Hormuz concerns. Brent crude rose from pre-conflict levels to wartime highs, then pulled back as markets calmed.
Part of the calm reflected a fragile ceasefire reached earlier this month between U.S. and Iranian forces. The truce has held so far, and market participants have priced in potential broader de-escalation. Coverage and market reports caution the ceasefire is tenuous and could fray, keeping a geopolitical risk premium for oil traders and investors.
Strategists warn the rebound isn’t guaranteed: a fresh flare-up could lift oil, push inflation expectations higher and complicate the Federal Reserve’s rate outlook. Higher rates would weigh on equity valuations, especially high-growth companies whose future profits are more sensitive to discount-rate changes.
Big tech and AI spending are the next hurdle
The corporate calendar poses another test. Major technology companies are due to report results that could show whether profit upgrades hold once earnings are reported.
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The next big test is major technology companies’ upcoming earnings, which should show whether recent profit upgrades hold — while the fragile ceasefire keeps a geopolitical risk premium in place.
This article was created with AI assistance.
