Nearly two months have passed since the joint U.S.-Israel airstrike on Iran at the end of February led to a full-scale conflict. Although a two-week ceasefire is currently in effect, there are no clear signs of a definitive end to the war. However, a significant trend for retail investors to note is that after initial severe selling volatility, Wall Street institutional investors appear to be filtering out war-related noise. They are no longer treating the conflict as the "core variable determining market direction," as they did in early March, but are instead largely "ignoring the noise of war." This helps explain why the two major U.S. stock market indices, the S&P 500 and the Nasdaq 100, have completely recovered all losses triggered by the Middle East geopolitical conflict in late February.

Since March 27, the benchmark S&P 500 index has risen nearly 10%, heading for a third consecutive week of gains. Over the same period, the Nasdaq 100 index, often seen as a global barometer for tech stocks, has advanced approximately 12%, closing higher for ten straight days—its longest winning streak since 2021. Following a five-week decline after U.S. and Israeli military strikes on Iran, Wall Street's top traders are now largely indifferent to negative developments in Middle East geopolitics. They are choosing to continue pouring into the stock market as earnings season begins, with initial corporate profit data and future outlooks appearing optimistic.

For equities, this is typically not a bad sign but rather an indication that risk premiums are being gradually squeezed out. As long as the conflict does not escalate into a sustained energy crisis or an earnings recession, capital will flow back to more traditional pricing frameworks centered on "profit growth, valuation recovery, and earnings validation." Risk assets like cryptocurrencies and stocks have strengthened amid market expectations that the U.S. could reach an agreement with Iran, thereby ending the latest round of geopolitical tensions. Bitcoin, often regarded as a barometer for risk appetite, surged to its highest level in four weeks.

Several Wall Street financial giants attribute the current market resilience to continuously upward revisions in corporate earnings expectations, particularly for tech companies linked to explosive demand for AI compute infrastructure, whose robust profit outlooks remain uninterrupted by the war. Consequently, BlackRock has upgraded U.S. and emerging market equities to "overweight," noting that earnings growth expectations for the tech sector have risen to 43% for 2026. Citigroup also raised its rating on U.S. stocks to "overweight," citing more attractive valuations after recent pullbacks and an increasing contribution from U.S. tech to global earnings growth.

Stocks directly tied to AI compute infrastructure—such as Nvidia, TSMC, AMD, and Broadcom, which form a leading "AI compute super group"—often represent the most sensitive, earliest-moving, and highest-gaining segment during market or tech stock rebounds. These assets combine "earnings certainty" with "high beta characteristics." The core logic behind this is robust: this segment is directly tied to tech giants' record-breaking AI capital expenditures, rather than relying on speculative narratives. AI hyperscalers like Google, Microsoft, and Amazon continue their capital expenditure arms race. As long as they "prefer borrowing and layoffs over retreating in the AI capex competition," leaders across the AI compute supply chain retain investment appeal.

From panic selling to "ignoring war noise," earnings season and fundamentals are reasserting control over market pricing. Top Wall Street traders are currently dismissive of negative Middle East developments and continue to allocate to equities, with institutional investors being the core force behind the current stock market recovery. "It seems that neither the stock market nor broader financial markets are particularly concerned about the effective blockade of the Strait of Hormuz," said Doug Peta, Chief Investment Strategist at BCA Research. While some quantitative volatility metrics for stocks have fluctuated alongside rising macroeconomic risks, the new earnings season suggests that company fundamentals and future growth prospects are more likely to drive stocks toward a new bull market trajectory than Middle East geopolitical headlines.

According to Mark Hackett, Chief Market Strategist at Nationwide, institutional investors are the key drivers behind this equity recovery. After aggressive selling, market attention has returned to corporate fundamentals during earnings season, which he views as highly supportive. Meanwhile, elevated stock correlations, driven by the rapid market rebound and institutional use of index-tracking tools, are expected to cool significantly. The one-month realized correlation indicator for index components is currently near its highest level since May, suggesting stocks are trading more on macroeconomic headlines than company-specific fundamentals. As the chart shows, synchronized volatility persists. Hackett stated, "As markets stabilize, I expect a return to pricing trends similar to early this year, with significant divergence between winners and losers. Tech stocks, international equities, small-caps, and value stocks are likely to show stronger performance."

Trading sessions on Monday and Tuesday indicated a significant easing of war-related anxiety. After no breakthrough in weekend peace talks between the U.S. and Iran, the S&P 500 opened flat on Monday but closed 1% higher, erasing all war-driven losses. The index gained another 1.2% on Tuesday. Since its late-March low, the S&P 500 has climbed nearly 10%. As illustrated, equities have returned to a bull market uptrend—the S&P 500 wiped out all Iran war-related losses on Monday. Veteran Wall Street strategist Ed Yardeni, who has seen similar situations before, noted in a Sunday client report that financial markets are learning to coexist with the Iran conflict, much like with the prolonged Russia-Ukraine war. Yardeni maintains that the S&P 500 officially bottomed on March 30.

As the U.S. and Iran negotiate technical terms related to the latter's nuclear program, BCA's Peta expects rapid progress toward de-escalation. With advancing peace talks, much of the risk premium applied to stocks and bonds during the conflict could be removed from financial markets. However, Lori Calvasina, Equity Strategist at RBC Capital Markets, warns that a lack of clarity in peace talk prospects and potential ripple effects from the conflict raise the risk of a "growth scare" downturn. While the S&P 500 was no longer expensive at its March lows, Calvasina believes stocks have not fallen enough to be attractive based solely on valuation. "This is important because if the narrative around the geopolitical war or its fundamental impact changes, stocks could fall further from a valuation perspective, potentially even more than before," she wrote in a Sunday client report.

Nationwide's Hackett doubts the S&P 500 can return to record highs until the conflict outlook becomes clearer. "I'm skeptical we can decisively break to new records until there's demonstrable progress toward an agreement. But when that day comes, conservative positioning, strong fundamentals, and reset expectations could create a coiled spring ready to snap," he said.

The most promising investment theme for the next phase remains offensive assets capable of converting record AI capital expenditure into real profits, implying a strategic focus on the AI compute supply chain and data center power infrastructure. BlackRock equity strategists have shifted back to "overweight" on U.S. and emerging market stocks, primarily viewing the substantive damage from the latest Middle East conflict to global growth as "likely very manageable." Regarding core investment themes, BlackRock favors semiconductor stocks closely linked to AI compute infrastructure, such as leaders in the U.S., South Korean, and Taiwan equity markets. The firm emphasizes the upcoming earnings season, asserting that earnings growth can sustain the U.S. bull market. Strategists wrote, "Even during geopolitical conflict, corporate earnings expectations continue to rise, largely due to robust AI compute demand driven by AI-related investment themes."

A recent forecast from Bank of America strategists projects that the global semiconductor market will reach $2 trillion by 2030, driven by accelerated growth in core AI compute leaders (led by Nvidia, Broadcom, TSMC, and Marvell Technology, with forward valuations between 15x-20x), memory/logic chips, advanced 2.5D/3D packaging, and data center power chains. The projected compound annual growth rate from 2025 to 2030 is 20%. In contrast, the global semiconductor market size is under $1 trillion until at least 2025. As model sizes, inference chains, and multimodal/agentic AI workloads drive exponential expansion in compute resource consumption, tech giants' capital expenditure is increasingly concentrated on AI compute infrastructure to meet soaring demand. Global investors continue to anchor the "semiconductor bull market narrative"—centered on Nvidia, Google's TPU clusters, and AMD's new product cycles and AI cluster delivery expectations—as one of the most certain growth stories in global equities. This also implies that investment themes closely tied to AI training/inference, such as power, liquid cooling systems, and optical interconnect supply chains, will remain among the stock market's hottest sectors, following leaders like Nvidia, AMD, Broadcom, TSMC, and Micron, even amid Middle East geopolitical uncertainty.