Have markets got the Iran War completely wrong?

Our world is full of mysteries, like why do we call them ‘apartments’ if they’re all stuck together? And why are boxing rings actually a square?

Today we’ll explore another: with Hormuz still blocked, the US still at war, and no end in sight for the biggest energy shock in history, why did the S&P500 just hit another record?

Here are five possible reasons you need to know, starting with…

1. Artificial intelligence

The US tech sector is still charging ahead, with six of the Magnificent 7 (aka a third of the S&P500) all just beating Q1 expectations for earnings-per-share, yet again. The seventh (Nvidia) is due to post earnings later this month.

Why so upbeat? Non-tech earnings are performing well too, but investors seem to be buying tech’s longer-term AI story, even if it means some staggering capex right now: we’re talking $700B (aka a Sweden) on new AI infrastructure this year alone.

And to buy that AI story, investors might also be buying a bit of…

2. Hormuz optimism

Wall Streeters like to investor-splain that share prices are the net present value of all future earnings, so there’s an implicit calculation here that this AI supercycle will outlast and outweigh the Iran war: eventually, Hormuz will reopen, oil prices will stabilise, productivity will outrun inflation, and maybe our grandkids will study the Iran war. Makes sense.

Though to buy that story, investors might also be buying a bit of…

3. US energy independence

You have a better shot at shrugging off history if you’re energy-independent, and the US has met part of that definition since 2019 when it became a net energy exporter.

The Mag7 tech giants specifically have also spent years as the world’s single largest corporate buyers and investors in clean energy, often via long-term supply contracts.

Now of course, keep in mind that a) Hormuz still threatens US tech with niche supply disruptions (eg helium), and b) true US energy independence would mean decoupling US prices from global volatility (instead, US pump prices are now at their highest since 2022).

But that’s still a compelling picture of both the world’s largest economy and its largest sector perhaps being able to ride this thing out.

Still, to buy that story, investors might also need to buy a bit of…

4. US consumer resilience

Despite consumer confidence scratching record lows, US retail sales have held up, wage growth is outpacing inflation, household savings have stabilised, and loan delinquency rates are still low.

So while there are market jitters (we explored them in private credit, for example), US consumers still act okay, and that curbs (though doesn’t erase) the risk of a recession.

Meanwhile, geopolitical shocks alone have tended to leave only limited long-term impacts if corporate earnings hold (which they are), so maybe investors are just seeing beyond all the negative Nancys and concluding, “this too shall pass“?

Like a tale of two timelines: Wall Street’s tomorrow vs everyone else’s today.

Or maybe…

5. Is the market getting this wrong?

In just about every major modern shock (1973, 1990, 2022), markets initially said ‘meh’ before suddenly pivoting to ‘omg’ once the full economic damage became clear.

And yes, the full damage is now starting to come into focus: we’re draining our world’s pre-war storage while heading towards a supply cliff: Hormuz-trapped Kuwait, for example, just exported zero oil for the first time in more than three decades!

That’s why a leaked JP Morgan memo ominously concluded… “it’s just math“: with ~10 million daily barrels now missing, oil prices must rise to destroy enough demand to match that smaller supply: Spirit Airlines just went under, Lufthansa has cancelled 20,000 flights, and more might follow.

That theoretically all means more inflation, higher rates, less investment, cash-strapped foreigners buying fewer US holidays, and slower growth ahead.

But… even if the markets are wrong here (still an if), maybe that only gets you back to the famous Keynes line: “the market can stay irrational longer than you can stay solvent.”

Or if you want to invert it: the optimistic bet has tended to pay off… until it doesn’t.

Intrigue’s Take

Investors have already punched through a global pandemic, a land war in Europe, and even the fastest rate-hiking cycle in decades. So a 10% haircut to oil supplies? Yawn.

But maybe another way to look at this latest S&P500 record is to zoom out and see it in a broader context: US stocks have now persistently underperformed the rest of the world for the first time since America’s early 2000s ‘lost decade’ after the dot-com bust. So maybe one conclusion is sure, US markets are fine, but they’d be finer without the chaos.

Another way to look at this S&P500 story is to reframe it in (say) gold rather than the US dollar, which fell 10% against major currencies last year. And if you do that, the S&P500 has been flat or even down since roughly 2021. So there’s a degree to which this could be as much about a weaker dollar as it is about a stronger S&P500.

A third and final way (for now!) to look at this is to consider that, if you’re a fund manager, are you really going to park your billions in a stagnant Eurozone, a war-rattled Middle East, or an energy-starved Asia? You might still prefer to stick with the most liquid, battle-tested companies on earth, as distilled via the S&P500.

And if that’s the case, then maybe any relative US-vs-the-world underperformance is less about the end of US exceptionalism, and more a classic valuation rotation: pricey US stocks (63% of the world’s market cap) can look less a safe haven and more a price-trap.

Though maybe in this wild world of ours, a pricey bunker can still look like a bargain.

Sound even smarter:

• President Trump has said he’s “not satisfied” with Iran’s weekend peace proposal, which reportedly dropped the regime’s precondition for the US to first lift its blockade, but otherwise held firm on demands like sanctions relief, and the continuation of its nuclear energy program (with a 15-year enrichment pause).
• In response, Trump has instead announced Project Freedom — a US Navy-led operation to escort stranded (and neutral) ships out of Hormuz, starting today (Monday). It’s a game of chicken, so keep an eye out for how many tanker captains are willing to bet their ships and crew on Iran blinking first (though Trump’s repeated emphasis on them being neutral ships suggests a hope the regime might hold fire rather than anger a new cohort of random capitals).