Markets shrug off US-Iran conflict as stocks keep rallying

Global markets have continued to move higher despite a late-February US-Israeli attack on Iran and three months of shipping disruptions in the Strait of Hormuz. The S&P 500 dropped about 8% in March, hit a low on the last trading day of the month, then recovered to clear its late-January high and is roughly 8% above that prior peak.

Oil prices reacted first to the outbreak of hostilities. Front-month WTI peaked near $130 per barrel after Russia’s 2022 invasion of Ukraine, fell to just under $55 in December, and traded near $67 ahead of the attack. When markets reopened after the weekend attack, front-month WTI gapped up by about $7, climbed above $115 a week later and then retreated. Since that spike, oil has largely traded within a roughly $20 range.

Currency and metals markets also moved. The cash U.S. Dollar Index rose from about 97.45 to briefly above 100 before settling near 99, about a 1.6% increase from pre-conflict levels. Gold has fallen roughly 18% and silver about 25% from their early-March peaks. Market participants point to dollar strength and a loss of confidence after parabolic rallies in late January as factors behind those declines.

Equities led the broader market rebound. The S&P 500 fell about 8% in March, recovered to pre-attack levels within a week, then passed its late-January all-time high the following week. Technology stocks were a major contributor to the gains, and U.S. indexes rose on renewed risk appetite as the conflict entered its fourth month.

The Strait of Hormuz has been effectively closed to shipping for about three months, and Qatar’s liquefied natural gas facility has been offline since the fighting began. Damage and shutdowns at energy facilities have reduced global inventories. Industry participants say that even if shipping resumes, it will take months or longer to rebuild commercial stocks and refill strategic reserves.

Reports that the United States and Iran may have reached a deal, which would require presidential approval, supported fresh gains in U.S. indices. Earlier announcements of potential diplomatic breakthroughs did not produce lasting peace. David Morrison, senior market analyst at Trade Nation, wrote: ‘Does the war matter? It doesn’t look as if it does.’

Market behavior has diverged across asset classes. Energy markets and some commodities remain sensitive to supply disruptions, while equity markets have focused on corporate earnings, liquidity and momentum. Initial market expectations that the conflict would end by mid-April proved optimistic, and markets have continued to price around persistent geopolitical risk alongside growing preference for risk assets.