The stock market can withstand war

SP500

Key zone: 6,450 - 6,600

Buy: 6,650 (on strong positive fundamentals); target 6,850; StopLoss 6,580

Sell: 6,350 (after retesting the 6,500 level); target 6,200-6,100; StopLoss 6,420

Despite the escalation of the conflict in the Middle East, the stock market has declined far less than could have been expected. And this resilience has вполне rational reasons.

If the U.S. gets drawn into a large-scale ground operation and oil prices rise above $150, those investors who exited equities in advance will be able to say: “we warned you.” But for now, the situation is far from panic.

The S&P 500 index remains only 6–7.4% below its pre-war high. Against the backdrop of a global energy crisis and even fuel rationing in some Asian countries, such dynamics look more like a sign of resilience than weakness.

Three factors of market stability

Historical resilience

According to Deutsche Bank, the average stock market decline during 30 major geopolitical events since 1939 was only about 4%, with recovery occurring relatively quickly.

Even conflicts such as the wars in Vietnam and Afghanistan did not undermine the resilience of the U.S. market. Much more serious consequences for equities came from economic crises:

• The Great Depression
• The 1973–74 oil embargo
• The dot-com crash
• The 2007–2009 financial crisis

It is economic shocks — not wars — that have historically caused the greatest damage to the market.

At the same time, high oil prices still put pressure on the U.S. economy, despite its status as a net energy exporter. The political factor is also important: voters are not willing to tolerate high fuel prices for long, especially ahead of elections. This limits the duration of the conflict.

Rising corporate earnings expectations

Paradoxically, earnings forecasts for S&P 500 companies continue to rise even after the conflict began.

• Earnings per share expectations increased by 3.6% — the best result in the past 5 years.
• Oil companies are the growth leaders.
• Lagging sectors include fuel-dependent industries: aviation, chemicals, cruise business.

At the same time, growth in forecasts is observed across all sectors. The technology sector stands out in particular, showing the strongest monthly increase in expectations since 1995.

Despite talk of stagflation, only a small portion of investors is actually pricing in a recession scenario.

Support from artificial intelligence

Shares of companies such as SanDisk, Seagate Technology, Micron Technology, and Western Digital initially rose on demand for memory used in data centers, and then corrected.

Nevertheless, the key driver remains unchanged — the development of artificial intelligence technologies. The market expects investments in data centers and infrastructure to continue growing, supporting the capitalization of technology companies.

And what is the result?

The current market optimism is based on the assumption that the conflict in the Middle East will end relatively quickly. But this scenario is far from guaranteed:

• Iran and the U.S. may fail to reach a compromise;
• Israel may continue military operations;
• possible deployment of U.S. troops could lead to a prolonged conflict and disruption of key maritime routes.

The market is gradually shifting from short-term fear to deeper reassessment:

• expensive energy is becoming the new normal;
• traditional asset correlations are breaking down;
• the cost of capital is changing.

Rising energy prices directly threaten corporate profits — and therefore the future performance of equities.

The main risk now is not the war itself, but its consequences for the global supply system. These effects have not yet been fully priced into market forecasts.

Against this backdrop, tension is increasing: the VIX fear index remains above 30, positive sentiment is weak, and the sell-off in liquid assets continues. This creates a dangerous situation for investors trying to “catch the bottom.”

So we act wisely and avoid unnecessary risks.

Profits to y’all!