Oil prices keep rising as a "warning," but why are U.S. stocks unmoved?
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Oil prices and US stocks are experiencing a rare "dual-track market"—while escalating tensions in Iran are driving oil sharply higher, US stocks continue unabated to refresh their historic highs.
Behind this decoupling lie optimistic sentiment supported by a strong earnings season, unique structural boosts from the options market, and the market's strong bet on eventual resolution of the conflict. However, analysts warn that this calm is more like a "sandcastle"—it seems solid until it suddenly isn't.
Violent Oil Price Swings, Geopolitical Games Heating Up
In the past 24 hours, the oil market has experienced a "roller-coaster" trend, as multiple pieces of news alternately impacted prices.
After Iran detained two vessels in the Strait of Hormuz, oil prices initially surged; after a third vessel was attacked, prices further pushed up to the previous day's high. Afterwards, Trump said that a new round of US-Iran talks could take place as early as Friday, leading to a brief price retreat; then the White House announced the ceasefire would be extended by another 3 to 5 days, and prices surged again. In the afternoon, Iran’s president said, “We welcome dialogue and agreements,” and accused Trump of “contradictory words and actions,” causing a slight softening in oil prices. The White House press secretary emphasized that "the blockade continues, Kharg Island is completely full," further suppressing bullish sentiment.
The final result: near-term WTI futures regained all losses caused by ceasefire news, returning to levels above those before talks broke off.
Despite oil price volatility, FX volatility has fallen back to near recent lows, with Deutsche Bank’s FX volatility index hovering near its lowest levels since late 2025. Analysts point out this calm “looks more like complacency than conviction”—the ceasefire agreement could end at any time due to incidents in the Strait, and Iranian media have indicated they have no intention to negotiate with the US this week.
Why US Stocks Are “Turning a Deaf Ear”
Despite high geopolitical risks, US stocks have chosen to ignore the macro and focus on the micro—in other words, a surprisingly strong earnings season is supporting this logic.
According to Bloomberg, S&P 500 constituents have continued improving their ability to convert revenue to profit, and per-share earnings consensus forecasts have remained upward even amid recent market fluctuations. This season’s earnings are running in a “well above expectations” direction. As Bloomberg's Sebastian Boyd pointed out, the fundamental reason why US stocks show resilience amid negative news from Middle East conflicts is the abundance of corporate profits, making it hard for the market to turn bearish.
The structure of the options market is also contributing to this calm. The S&P 500 is currently in a positive gamma zone, short-term implied volatility is low, call option buying is concentrated, keeping the index anchored near 7100. 0DTE (zero-day to expiry) options traders aggressively sell puts at the end of the day, further suppressing actual volatility, causing the Nasdaq to accelerate gains before the close.
Market Structure Conceals Risks
Despite repeated new highs in the index, the foundation supporting this rally is not solid.
S&P 500 market breadth has fallen to one of the narrowest levels since the Internet bubble era, with this rally highly concentrated in a few large-cap tech stocks. The “most heavily shorted” stocks' short squeeze rallies have stagnated for four days, with short squeeze momentum running out. Small-cap stocks underperformed noticeably today, and initial gains after the opening due to short-covering disappeared quickly.
Goldman Sachs warns that after options expiry in April, positive gamma hedging cushions will thin, and once the S&P 500 falls below 7050, the options structure will accelerate downward, with the main support at 7000 and resistance at 7125-7150.
The return of the VIX above 20 on Tuesday is also noteworthy, hinting that traders’ desire for downside protection is quickly rising in the face of worsening conditions. Goldman Sachs’ head of hedge fund business also stated that while the main bull market trend remains intact, short-term risk-reward is not ideal, recommending traders maintain a “long Delta, long Vol” portfolio, and add hedges as needed.
How Long Can the Decoupling Last?
The current disconnect between the stock market and oil prices reflects the market’s premise that “conflict will ultimately be resolved.”
As Goldman Sachs points out, as long as the market maintains belief in a “solution within the coming months,” even periodic economic damage is unlikely to exert significant impact on long-duration assets such as stocks. But this also means the entire market is deeply dependent on this assumption—if it wavers, the extent of damage could multiply.
According to Bloomberg, the probability on political prediction platform Polymarket for “military actions ending before June 30” has recently declined noticeably, yet the S&P 500 has reached historical highs in the same period, widening the gap between the two.
Against the backdrop of extremely narrow market breadth and sharply reduced macro hedges, if ceasefire agreements break again and Strait attacks reignite, the stock market could face corrections far more severe than current pricing suggests.
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