Ignoring the Iran war, what gives the US stock market its confidence?

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From reduced dependence on oil to profit growth driven by tech giants, multiple factors have contributed to the unexpected resilience of US stocks during the Iran war.

Since April, US stocks have rallied strongly, forming a stark contrast with the ongoing conflict. The general consensus is that Trump has repeatedly signaled an "imminent US-Iran deal," boosting market sentiment, but so far, there are no signs of any agreement, and both sides have indicated they are prepared to continue fighting.

The S&P 500 began to decline as early as late January, a month before the conflict; what truly triggered this round of market downturn was "AI panic trading". Institutions such as Goldman Sachs, Morgan Stanley, and JPMorgan have recently recommended buying the stocks previously hit by AI panic at lower prices, and these indeed spearheaded the rally this month.

Inflation indicators corroborate the market's calm. Since the outbreak of war, the US five-year breakeven inflation rate has only risen 0.2 percentage points to 2.6%; the two-year US Treasury yield remains within the Fed’s short-term rate target of 3.5% to 3.75%, the market does not believe the central bank needs to restart rate hikes to combat a new round of inflationary pressure.

The oil market's response is relatively mild, inflation expectations remain essentially stable, the tech-driven profit growth logic remains uninterrupted, and retail investors have deeply internalized "buying on dips". Multiple factors together underpin the resilience of US stocks during wartime.

The Truth of the March Decline: AI Panic, Not War

To understand why US stocks could ignore this war, you first need to clarify a popular but inaccurate narrative—that the Iran war caused the March market decline.

In fact, the S&P 500 began a mild decline in late January, fully a month before the outbreak of war. What truly triggered the market was so-called "AI panic trading": investors sold off stocks of companies in software, logistics, and white-collar services seen as threatened by artificial intelligence.

This AI-driven sell-off continued into March, overlapping with the outbreak of war, with the S&P 500 falling nearly 8% that month.

About 60% of that decline came from just 20 stocks, most of which were closely tied to AI sentiment, including the "Tech Big Seven" as well as Broadcom, Micron, Lam Research, and Applied Materials.

The other 40% of the decline was concentrated in four sectors; among them, the industrial sector was indeed directly related to the conflict, but the financial, healthcare, and other tech sectors were not directly affected by the war, and their individual contribution to the S&P 500's overall decline was almost negligible compared to the tech giants.

Significant Decline in Oil Dependence, Stable Inflation Expectations

For investors who experienced the 1970s, Middle East wars easily evoke painful memories of oil embargoes, inflation, and bear markets. However, today’s global economy is far less reliant on oil.

Currently, oil output accounts for about 2% of global output, about a quarter of what it was during the 1979 Iranian Revolution. Even so, only one-fifth of that oil needs to pass through the currently contested Strait of Hormuz.

The actual trend in oil prices also confirms this logic. Adjusted for inflation, oil prices nearly tripled from 1973 to 1974, and more than doubled from 1979 to 1980; since the outbreak of this war, prices have risen only about 40%, a relatively mild increase.

Currently, spot oil prices are significantly higher than the market's expected prices for the coming months, despite no concrete signs that the conflict is about to end.

The relative stability of oil prices similarly translates into steady inflation expectations.

Since the outbreak of the war, the US five-year breakeven inflation rate has only risen 0.2 percentage points to 2.6%. Two-year Treasury yields remain within the Fed's short-term rate target range of 3.5% to 3.75%, indicating the market does not expect the central bank to raise rates to counter a new round of inflation.

The certainty in the interest rate path eliminates one of the most key sources of uncertainty in valuation models.

Technologically Driven Boom Cycle, Strong Immunity to War

From the perspective of corporate fundamentals, US stocks’ "immunity" to war is also well documented.

About 30% of S&P 500 constituent companies’ revenue comes from overseas, but only less than 3% comes from the Middle East and Africa. Even if persistently high oil prices suppress consumption and drag sales, that pressure should first be reflected in a clear rise in inflation expectations—which has yet to appear.

Meanwhile, the market is enjoying a genuine technology-driven boom cycle.

According to Bloomberg-compiled analyst forecasts, the "Tech Big Seven" plus Broadcom and Micron are expected to contribute 70% of the S&P 500’s projected 20% revenue growth over the next 12 months. This highly tech-concentrated market may face risks of over-concentration and AI disruption, but it is by no means something a regional Middle Eastern conflict can shake.

Retail "Buy the Dip" Becomes Market Self-Repair Stabilizer

Another force not to be ignored: retail investors.

Having been through multiple rounds of market education, they have deeply internalized "ignore volatility, keep buying". They entered massively during the pandemic sell-off in spring 2020; during last year’s tariff panic, they bought again.

So far, the war has not provided them with a similar buying opportunity at lows—perhaps partly because they themselves have held up the market.

US stocks reaching new highs is not because the market believes the Iran war is about to end. The market never really cared about this war in the first place, and won’t in the future—unless the conflict crosses Middle East borders and evolves into a global clash.

Risk Disclaimer and Exemption ClauseThe market contains risks, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investment is at your own risk based on this article. ```