MW U.S. stocks may be moving past the Iran conflict - but these markets aren't sending the 'all clear' just yet

By Joseph Adinolfi and Christine Idzelis

Bonds and oil still have a ways to go, while stocks trading outside the U.S. are still trading below prewar levels

U.S. stocks have erased their losses from the Iran conflict.

No matter how you slice it, U.S. stocks seem to be already moving past the Iran conflict. But commodity markets and other financial assets aren't ready to turn the page just yet.

That could be a sign that investors should think twice before chasing the rally in stocks, said Tom Essaye, publisher of Sevens Report Research, in commentary shared with MarketWatch.

"While we are happy stocks have rebounded, this furious 10-day rally has not been confirmed by other asset classes, most notably Treasury yields and oil prices, and we do think that nonconfirmation should give some stock investors cause for pause," Essaye said.

The stock-market rebound over the past two weeks has been unusually intense. On Wednesday, the Nasdaq Composite COMP was on track to tally an 11th straight day in the green - what would be its longest winning streak since 2021, according to Dow Jones Market Data. As of 11 a.m. Eastern time, the tech-heavy index was also on track for its biggest 11-day gain on record.

On Tuesday, the S&P 500 SPX finished erasing the last of its losses since the fighting began in late February. It also clinched its strongest 10-day rebound - 9.8% - since the COVID-19 rebound in April 2020, according to strategists at Deutsche Bank. Both the S&P 500 and the Russell 2000 RUT have recently been flirting with record closing highs; neither index has scored one since January.

It isn't just U.S. stocks that have retraced their postconflict moves; the dollar has also erased most of its gains since the fighting began. The ICE U.S. Dollar Index DXY, a closely watched gauge of the dollar's value against several key rivals, was on track to decline for an eighth straight day on Wednesday - what would be its longest losing streak since 2011. It was recently trading at 98.

Earnings excitement

To be sure, stocks may be responding to catalysts that simply don't apply to other markets. For example, corporate earnings estimates continued to climb heading into the latest quarterly reporting season, which is just getting underway.

The chart below shows consensus bottom-up earnings estimates compiled by FactSet as of late last week.

"This proved to be a typical V-shaped, momentum-led recovery much like we saw last April following President Trump's Liberation Day tariffs - a geopolitical shock offered buying opportunity; investors are conditioned to buy the dip, rates haven't spike[d] too badly and are coming back down, while earnings forecasts remain exceptionally bullish, and AI spend continues to underpin an astonishing business investment cycle," said Neil Wilson, an investor strategist at Saxo, in commentary shared with MarketWatch.

Bonds and oil signal more caution

Bond yields and crude-oil prices haven't been so quick to retrace their steps, although both have been moving in that direction.

Both were climbing on Wednesday, with the yield on the 10-year Treasury note BX:TMUBMUSD10Y up 3 basis points at 4.283%.

West Texas Intermediate crude for May delivery (CL00) (CL.1) (CLK26) was up 1.2% at $92.40 a barrel. Brent crude (BRN00) (BRNM26), the global benchmark, was up 0.9% at $95.62 a barrel for June delivery.

WTI was still nearly 40% above its preconflict level in recent trade, as the chart below shows.

While stocks are riding high on hopes that the Federal Reserve will look through the inflationary impact from higher crude-oil prices, bond and oil traders aren't as willing to look through any short-term disruptions stemming from the fact that the Strait of Hormuz, a critical chokepoint for the global energy trade, has been effectively shuttered for more than a month.

"If the oil markets were as confident about a lasting detente between the U.S. and Iran, oil prices would be solidly lower," Essaye said in written commentary. He also pointed out that the 2-year Treasury yield BX:TMUBMUSD02Y is still well above its prewar level, signaling that bond traders aren't as confident that the Fed will cut interest rates later in the year.

"Now, to be clear, this nonconfirmation does not automatically mean that stocks are 'wrong' and oil/Treasurys are 'right.' Treasury yields could fall sharply in the coming days to confirm the move in stocks and oil could plunge on any announcement of a more permanent ceasefire," Essaye added.

"However, it does show us that not all traders and strategists are viewing the impacts of the war as being so 'transitory' as the move in stocks implies."

It is also worth noting that foreign equity markets were still trading below their preconflict highs as of Wednesday. The Euro STOXX 50 XX:SX5E was nearly 3% below its February peak in recent trade, FactSet data showed. Stock markets in Japan, China and South Korea are also well below their 2026 highs.

To be sure, there are a number of plausible explanations that might explain the divergence between U.S. stocks and bonds. Deutsche Bank's Jim Reid laid out a few in commentary shared with MarketWatch on Wednesday, where he noted that stocks have started to decouple from crude-oil prices while bonds continued to trade in lock step.

A little bit of inflation isn't necessarily a bad thing for stocks, provided corporate profits can keep climbing, Reid said. The war might also necessitate a boost to fiscal spending, which could weigh on bonds while delivering a shot in the arm to the broader economy, at least in the short term. That should also benefit risk assets.

Finally, bond yields may have been too low heading into the conflict, reflecting what Reid characterized as "irrational" fears about the potential economic blowback from the AI revolution, as well as concerns about a labor market that, according to the latest economic data, is still resilient despite warnings from some economists about a more pronounced downturn ahead.

Others believe the move in bonds suggests traders are potentially preparing for something more ominous.

Ella Gude, head of fixed income at BNY Investments Newton, said bond traders could be bracing for higher consumer prices, even as yields have come off their highs.

"The reaction from bonds makes sense," partly because inflation was already sticky before the Iran conflict, Gude told MarketWatch during an interview. Now, with oil prices still elevated amid the conflict, "the kind of setup we're facing is a potential inflation shock," she said.

Data from Kpler show that traffic through the Straight of Hormuz has ticked higher in recent days, despite the U.S. blockade of the waterway. But the number of oil tankers transiting the strait has remained well below its preconflict level.

Michael DeStefano contributed

-Joseph Adinolfi -Christine Idzelis

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April 15, 2026 13:47 ET (17:47 GMT)

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