Despite ongoing geopolitical tensions in the Middle East, persistent disruptions to oil supplies, and warnings from economists that prolonged conflict could dampen economic growth, U.S. stock markets closed higher on Thursday, led by a strong rally in technology shares. The S&P 500 and Nasdaq Composite indices surged to record highs, with the S&P 500 logging its second consecutive day at an all-time peak and gaining approximately 11% since late March. The Nasdaq 100 Index, often viewed as a barometer for technology stocks, along with the Nasdaq Composite, extended their winning streaks to 12 sessions—the longest such streak for the Nasdaq 100 since July 2017.
Even as the conflict involving Iran remains unresolved and oil shipments through the Strait of Hormuz continue to face significant disruption, global equity markets, including U.S. stocks, have demonstrated remarkable resilience. Wall Street’s bullish sentiment has grown increasingly confident. After an initial period of volatile selling, institutional investors appear to be tuning out war-related noise, no longer treating geopolitical conflict as the primary driver of market direction, as was the case in early March. Instead, many are largely ignoring the turmoil.
Several major financial institutions attribute this market strength to upward revisions in corporate earnings expectations, particularly for technology companies benefiting from explosive demand tied to AI computing infrastructure. Many investors may wonder how equities can reach new highs amid Middle Eastern conflict. Economists and market analysts broadly suggest that stock markets function as a barometer of investor expectations for the future, rather than an immediate reflection of current events. Investors, they note, largely view the Middle East tensions as a temporary disruption likely to be resolved relatively quickly.
Another significant trend supporting the global equity rebound is growing market confidence in the so-called "TACO" strategy—an acronym for "Trump Always Chickens Out." This approach, now widely adopted by traders, involves betting that former President Donald Trump will ultimately retreat from aggressive tariff threats or other major policy menaces that initially spark market selloffs. Investors use market dips to buy heavily, anticipating a strong rebound once policies are softened or withdrawn.
As the U.S. earnings season gets underway, robust expectations for AI-driven profit expansion, combined with growing belief that the U.S., Israel, Iran, and Lebanon will reach a lasting ceasefire under domestic pressure, have made top Wall Street firms like BlackRock, Goldman Sachs, and Morgan Stanley marginally more optimistic. These institutions see post-ceasefire valuation recovery, strong corporate earnings resilience, and upward revisions in tech earnings driven by AI demand as signs of returning risk appetite.
Joe Seydl, senior market economist at J.P. Morgan Private Bank, noted, "The stock market isn’t trying to price everything happening today. It’s always looking ahead to what the world might look like six to twelve months from now."
One reason for market resilience lies in the robust profitability displayed by companies during earnings season. According to Nationwide Chief Market Strategist Mark Hackett, institutional investors have been the primary force behind the equity recovery. After an aggressive selloff, attention has returned to corporate fundamentals, which he describes as highly supportive. Major traders currently appear unfazed by Middle Eastern tensions, continuing to allocate to equities. These investors seem to believe the regional disruption is a manageable oil price shock rather than a systemic supply crisis—as long as it doesn’t permanently damage U.S. corporate earnings, send oil prices spiraling out of control, or force the Federal Reserve to turn hawkish.
The S&P 500 fell roughly 8% in the initial weeks following the outbreak of conflict with Iran, from February 28 to its recent low on March 30. Since then, however, global equity markets have staged a strong rebound, erasing all losses incurred since the conflict began. Stock markets in South Korea, Taiwan, and mainland China—home to many leading AI infrastructure companies—have shown particularly strong gains since April.
Mark Zandi, chief economist at Moody’s, stated, "The market has been very resilient in the face of this war and has rallied strongly on expectations that geopolitical issues will be resolved."
At first glance, little appears to have changed since late February, leaving retail investors puzzled by the market’s sudden optimism. The initial selloff was driven by fears that oil supply disruptions could fuel global inflation and potentially lead to stagflation. Iran’s continued blockage of the Strait of Hormuz—a transit route for 20–30% of global oil and gas—constitutes one of the largest supply disruptions in history, sending oil prices soaring throughout March and raising stagflation concerns.
Although a two-week ceasefire agreement was reached on April 7, the blockade remains largely in effect. While investors have cheered signs of diplomatic de-escalation and a potential path to a longer-term truce, the temporary ceasefire remains fragile, with both sides accusing the other of violations. No lasting peace deal had been reached before the short-term truce expired. U.S. Vice President JD Vance stated that American officials left peace talks in Pakistan last weekend after Iranian delegates rejected Washington’s demand to halt nuclear weapons development.
Nevertheless, global market performance suggests growing confidence that a stable, long-term ceasefire will soon be agreed upon.
Economists point to two core pillars supporting new market highs amid geopolitical turmoil: the TACO strategy and AI-driven profit expansion. Ultimately, markets reflect a collective belief that tensions will ease, the war will end soon, Hormuz shipping will normalize, and the world will find alternative energy routes—much as Europe reduced dependence on Russian oil and gas.
Investors, economists say, have been conditioned to believe that economic pain will prompt Trump to back down—the essence of the TACO trade. The strategy emerged in April 2025 when Trump threatened unprecedented “reciprocal tariffs.” Traders bet that either the threats would be withdrawn or implemented in a much softer form, insufficient to derail U.S. economic expansion. The term was coined by a Financial Times columnist to describe Trump’s pattern of escalating rhetoric followed by retreat, with markets then rallying sharply.
When asked about TACO at a press conference, Trump angrily denounced the question as “vicious.” Economysts cite a recent example: in April 2025, after the Trump administration imposed a series of global tariffs and U.S. stocks fell more than 12%, Trump suspended the tariffs for 90 days. Global equities subsequently posted one of their largest single-day gains in history.
“Investors strongly believe—and have been trained to believe—that he will back down, find a way to smooth things over, declare victory, and move on,” Zandi said. Trump has repeatedly denied that he retreats, describing his brinkmanship as a skilled negotiation tactic.
Other factors are also supporting market resilience. Zandi noted, “Another important element is investor enthusiasm for the strong profit trajectory of tech companies, driven by the AI computing spending wave. These tech stocks account for nearly half the S&P 500’s market capitalization.”
AI-related profit expectations are a core driver behind new market highs. Stocks directly tied to AI infrastructure—such as NVIDIA, TSMC, AMD, and Broadcom, often referred to as the “AI computing super group”—tend to be the most sensitive and strongest performers during market rebounds. The underlying logic is robust: these companies are directly linked to record AI capital expenditure by tech giants, not merely speculative narratives. As long as hyperscalers like Google, Microsoft, and Amazon continue their AI capex arms race, the entire AI infrastructure supply chain remains attractive.
BlackRock has upgraded U.S. and emerging market equities to “overweight,” citing 2026 tech earnings growth expectations of 43%. Citigroup also raised its U.S. equity rating to overweight, noting that recent market dips have made valuations more attractive and that U.S. tech continues to drive global profit growth.
BlackRock equity strategists now favor semiconductor stocks tied to AI infrastructure in the U.S., South Korea, and Taiwan. They highlighted the upcoming earnings season, asserting that profit growth will sustain the bull market. “Even during geopolitical conflict, earnings expectations continue to rise, largely due to strong AI computing demand,” strategists wrote.
Zandi added, “These stocks have their own dynamics, separate from everything else, including the Iran war. I think if not for very optimistic bullish sentiment around the AI super-cycle, we would have fallen further and recovered more slowly.”
Seydl noted that the market is in an “AI-driven tech boom,” and investors are likely to remain optimistic until they believe the cycle has ended. More broadly, equity investors are betting on companies’ future profit growth trajectories, against a backdrop that “has remained quite solid.” Consumer spending, for example, appears stable. Zandi also pointed out that corporate after-tax profits are being boosted by Republican-led tax policies that allow businesses to expense investments more easily, reducing tax burdens.
The market’s strength during conflict highlights why long-term investors should stick to their plans and ignore short-term noise. “For the average investor, trying to time the market is very difficult, if not impossible,” Seydl said. “A better approach is to take a long-term view and ride out any volatility.”
Equity markets appear to have “forgotten the war” not because they ignore geopolitical risks, but because stocks trade on expected earnings growth over the next 6–12 months, supported by strong profit resilience and policy expectations. In contrast, global bond markets remain more directly influenced by oil-driven inflation expectations and interest rate paths.
With tech stocks leading a global rally—especially as the S&P 500 and Nasdaq hit new records during conflict—investors appear to be sounding the charge for a new bull market. Veteran strategist Tom Lee of Fundstrat believes U.S. and global equities are in a stronger position now than at earlier peaks this year. He agrees with J.P. Morgan’s view that tech, led by AI infrastructure, must drive the next major bull phase. Citigroup expects the S&P 500 to reach 7,700 by year-end; it closed at 7,041.28 on Thursday.
The current bull narrative rests on three pillars: corporate earnings resilience from the latest quarterly reports, renewed risk appetite led by tech/AI themes, and the market’s judgment that Middle East disruptions will not cause lasting inflation like that seen in 2022. As long as these pillars hold, Wall Street will likely continue to treat war-related headlines as noise.
Citigroup’s latest research indicates that the tech sector, previously pressured by geopolitical fears, valuation anxiety, and high expectations, is now entering a window where risk appetite is shifting toward fundamental reassessment. As Iran tensions ease marginally, markets have quickly rotated back into risk assets, with the S&P 500 and Nasdaq strengthening in tandem—suggesting investors are once again trading on “future AI-driven profit growth” rather than “current panic.”
Under this framework, tech stocks, especially large platforms, are no longer just liquidity-driven crowd favorites but have re-emerged as the core anchor for market risk appetite and earnings expectations. Citigroup strategists emphasize that the market is transitioning from a narrow rally led by a few AI winners to a broader advance—provided two conditions are met: tech leaders continue to justify high valuations with strong earnings and guidance, and geopolitical risks evolve in a predictable, manageable way. If these conditions hold, gains could spread from mega-cap tech into software, communication services, and other cyclical sectors, potentially leading to a “broadening bull market” by summer.