A few weeks ago we were staring straight at a major geopolitical problem. A conflict between the US, Israel and Iran had investors on edge, as oil tanker ships were no longer able to traverse the Strait of Hormuz and energy infrastructure across the Gulf States was being targeted with drone and missile strikes. The price of Brent crude oil reached nearly $120 per barrel as countries dependent on energy from the Persian Gulf began to panic. The S&P 500 plunged by roughly 10%, but that did not tell the full story, as many widely held stocks declined much more. The semiconductor index, for instance, was down 17% as Asian-based supply chains faced disruption from potential energy shortages.
However, on the last trading day of March, a furious rally began that would extend for two weeks and bring the S&P 500 and the Nasdaq to new all-time highs. This incredible rally began with reports of potential negotiations between the US and Iran to de-escalate the conflict, which triggered a strong risk-on sentiment. The negotiations did result in a shaky two-week ceasefire, but within days of the agreement, the US government decided to blockade Iranian ports. Surprisingly, the market has completely shrugged this off. It is clear that the market is already looking past this conflict and is discounting a positive outcome.
A change in attitude regarding the conflict with Iran cannot be the sole driver of the market. Once we look beyond the short-term geopolitical shocks, the market is fundamentally driven by earnings. The estimated first-quarter earnings growth rate is 12.5%, which is down ever so slightly since the start of the conflict, but it would still mark the sixth consecutive quarter of double-digit earnings growth. This reporting period, like most in recent years, will be driven by the technology sector. Its estimated growth rate is 44.4%, which translates into a 10.2 percentage point contribution to the 12.5% growth rate for the S&P 500. In other words, one sector accounts for effectively 80% of the aggregate growth rate. Importantly, this sector is driven by the development of AI and the mad rush to build out data centers. These dynamics are not directly affected by a conflict in the Middle East.
The next largest contributor to earnings growth is the financial sector, which is expected to account for less than three percentage points of growth, while the contribution from all other sectors is essentially negligible. As I write this article, the major US banks have already reported, and for the most part, it has gone well. With the exception of a typically cautious Jamie Dimon, the banks have hardly mentioned any uncertainty related to the conflict and have also given short shrift towards the other bugaboo—private credit.
While oil tankers may not yet be moving freely through the Strait of Hormuz, the market seems to be sailing with ease, propelled by earnings momentum that investors are finding hard to ignore.
Date of report: April the 20th 2026