Stocks have touched record highs despite Iran war. Here’s why
Investors trade on the New York Stock Exchange on April 16, 2026.
New York Stock Exchange
US stocks climbed to record highs on Thursday despite war, oil supply shock and economic forecasts warning stunted growth in the midst of a protracted conflict.
Many investors may be thinking: Why?
That’s largely because the stock market is a barometer of what investors think will happen in the future, rather than an assessment of the present, economists and market analysts say.
They said investors were essentially dismissing the conflict in the Middle East as a problem that would be resolved relatively quickly.
“The stock market is not trying to price in what’s happening today,” said Joe Seydl, senior market economist at JP Morgan Private Bank. “The stock market is always trying to price in what the world will look like six to 12 months from now.”
Why have stocks been ‘resilient’?
S&P 500The U.S. stock index fell nearly 8% in the first weeks of the Iran war, from the start of the conflict on February 28 to its low on March 30.
But stocks have since recovered, erasing all losses since the start of the war. The S&P 500 closed at an all-time high on Thursday; It’s about 11% higher than its low in late March. This follows a record close on Wednesday.
“The market has remained fairly resilient in the face of war and has rallied strongly on expectations that the problem will be resolved,” said Mark Zandi, chief economist at Moody’s.
A ship is waiting to pass through the Strait of Hormuz after the two-week temporary ceasefire between the USA and Iran in Oman on April 8, 2026, conditional on the opening of the strait.
Shady Alassar | Anatolia | Getty Images
While investors welcomed the prospect of a diplomatic exit to the conflict, a temporary ceasefire appeared tenuous with the United States and Iran accusing each other of violating the deal.
The nations were unable to reach a peace agreement before the ceasefire ended. U.S. officials walked out of peace talks in Pakistan over the weekend after the Iranian delegation refused to accept U.S. demands not to develop nuclear weapons, Vice President J.D. Vance said.
Markets ‘have memory’
Economists said the stock market ultimately signaled a collective belief that tensions would ease, the war would end in the near term and the flow of oil through the Strait of Hormuz would normalize.
Economists said this is largely because investors have been conditioned to believe that President Donald Trump will back down if the economic pain becomes too intense. The so-called “TACO” trade is short for “Trump always shy.”
“Investors strongly believe and are conditioned to believe that he will retreat, find a way to return, declare victory and move on,” Zandi said.
Trump has abandoned the idea of backing down, framing intimidation as a masterful negotiating tactic.
Economists have noted a recent example of this dynamic: In April 2025, on so-called liberation day, the Trump administration imposed a series of tariffs on U.S. trading partners.
Within days (after the stock market lost more than 12% of its value) Trump announced a 90-day pause on these tariffs. Stocks saw one of their biggest daily gains in history after Trump backed down.
Seydl said investors remember that Trump often cushions geopolitical shocks, so they focus on positive headlines that point to progress in peace talks.
“Markets have memories,” Seydl said.
Artificial intelligence stocks and the ‘tech boom’
Traders on the New York Stock Exchange celebrate the S&P 500 closing above the 7,000 level for the first time on April 15, 2026.
New York Stock Exchange
Economists said there were other factors that supported market flexibility in wartime.
One of them is investors’ interest in artificial intelligence and technology stocks, which account for nearly half of the S&P 500’s market value, Zandi said.
“These stocks operate on their own dynamics, independent of anything, including the war in Iran,” Zandi said. “If it weren’t for the very, very optimistic perspectives on AI, I think we would have had a much bigger decline and it would have been harder for us to recover.”
Seydl said we’re in the middle of a “tech boom” and investors will likely remain optimistic until they think the tech cycle is running its course.
More broadly, stock investors are essentially betting on a company’s future earnings growth, and the earnings backdrop is “pretty solid,” Seydl said.
For example, economists said consumer spending appeared stable. Zandi said companies are seeing increased after-tax earnings thanks to the GOP’s so-called “big beautiful bill,” which, among other things, makes it easier to write off investments up front and therefore reduces their tax liabilities.
Forward
Experts say the Iran war will take an economic blow.
“Despite recent news about a temporary ceasefire, some damage has already been done and downside risks remain high,” said Pierre-Olivier Gourinchas, director of research at the International Monetary Fund. wrote tuesday.
A protracted conflict could lead to deep, global economic pain, he wrote.
Even if the conflict is short-lived (as the general market expects) the U.S. is on the other side of the war, Zandi said, stocks are unlikely to rise much higher until it becomes clear the economic ramifications are clear.
If investors are wrong and President Trump doesn’t back down or quickly remove the United States from the war, the stock market could see a “full correction” or worse, Zandi said. A stock market correction means a decline of at least 10% from recent highs.
“Everyone thinks they know what the script is,” Zandi said. “They just need to follow the script now. If they don’t the market is going to have some real problems.”
Experts said the uncertainty provides another example of why the average investor with a long-term horizon should stick to the investment plan and ignore the noise.
“Trying to time the market is very difficult, if not impossible, for the average investor,” Seydl said. “It is better to take a long-term view and ride out bouts of volatility.”
