Markets are rising despite geopolitics

SP500

Key zone: 6,850 - 6,950

Buy: 7,000 (on strong positive fundamentals); target 7,100-7,150; StopLoss 6,950

Sell: 6,850(on a confident breakout of the 6,870 level); target 6,750-6,700; StopLoss 6,900

In recent years, equity markets have demonstrated remarkable resilience to geopolitical shocks, which appears paradoxical from the perspective of classical risk theory. Even potential military conflicts, which traditionally should amplify uncertainty, increasingly fail to trigger prolonged sell-offs or break prevailing uptrends.

Major equity indices are effectively ignoring military escalation. The lack of a visible reaction — including to potential U.S. strikes on Iran — confuses some retail investors and heightens nervousness. At the same time, the fundamental backdrop for U.S. assets remains contradictory.

Structural risks are accumulating in the market:

• inefficient economic policy under Trump is driving capital outflows from the United States;
• large participants in the debt market are revising strategies and reducing exposure to U.S. assets;
• erosion of confidence in the Federal Reserve’s independence is strengthening inflation expectations and putting pressure on interest rates.

Despite this, the dynamics of the S&P 500, Nasdaq 100, and Russell 2000 show no signs of a technical correction. The current picture more closely resembles classic capital rotation: as upside potential in large-cap stocks becomes exhausted, funds are reallocated into mid- and small-cap segments, continuing to support the indices.

Practice confirms this approach. During the escalation between Israel and Iran, the S&P 500 remained virtually unchanged and stayed close to pre-escalation levels. When Israel carried out strikes on Iran, S&P 500 and Nasdaq futures fell by approximately 1.5–1.8%, but most of the losses were quickly recovered. Analysts note that the market perceives such events as local and non-systemic, which reduces the likelihood of large-scale sell-offs.

As a rule, the initial reaction to military news may be negative, but sustained declines fail to develop: prices either recover quickly or consolidate within the previous range.

At first glance, what is happening may resemble market manipulation. A significant share of participants does not correlate military risks with current asset valuations, while market makers support the uptrend through spot purchases. This encourages retail investors to join the move, creating an effect similar to a “pump” in the crypto market.

However, this dynamic has a rational explanation. Geopolitics is treated by the market as a risk factor, but for long-term investors, macroeconomics and corporate earnings remain decisive. Military conflicts are not ignored — they are assessed through the prism of the probability of a systemic economic shock. As long as escalation remains localized and does not threaten the energy or financial balance, markets tend to recover after initial sell-offs.

Modern conflicts, in the market’s view, do not create a fundamental breakdown of supply chains and do not destabilize the global financial system. In the case of the Middle East, there is no immediate threat to the global energy balance, while the Ukrainian crisis has already been priced in through sanctions and logistics restructuring.

Low risk premia and the dominance of institutional investors using algorithmic strategies accelerate the “digestion” of shock news. Trading models focus not on headlines, but on scenario probabilities and their economic consequences.

Markets react sharply to wars only when there is a threat of a systemic economic shock. As long as the probability of serious escalation is assessed as low, capital remains in risk assets.

An additional factor is the weak perception of energy crisis risk due to increased production in alternative regions and the use of strategic reserves.

Trading Guidelines Under Military Risk Conditions

• do not close positions in risk assets solely on geopolitical news without confirmed deterioration in fundamental data;
• use oil and gold options for hedging during periods of elevated volatility;
• diversify portfolios toward defense, commodity, and consumer cyclical companies.

So we act wisely and avoid unnecessary risks.

Profits to y’all!