By Paul R. La Monica

The market has fallen on tough times. But with AI fears fading, an end to the war with Iran could send stocks higher.

It sure feels like the conflict in Iran is all that matters to the market. Investors are nervous about higher oil prices and the impact on supply chains caused by the closure of the Strait of Hormuz, and what they could mean for earnings, the economy, and the Federal Reserve. The war even seems to have supplanted the rise of artificial intelligence as Wall Street's top cause for concern.

With Brent crude, the global oil benchmark, set to close above $100 this week, the Dow Jones Industrial Average has dropped 1.7%, the S&P 500 index has fallen 1.3%, and the Nasdaq Composite has declined 1.1%, extending their losing streaks to three weeks. All three indexes are in the red for the year, and are likely to stay that way if the war drags on with no clear end in sight.

"The main question is about how long the Iran conflict lasts," says Nate Thooft, chief investment officer of equities and multi-asset solutions at Manulife Investment Management.

Those worries aren't academic. Core inflation came in hotter than expected this week, and higher oil prices are almost certainly going to jack up headline numbers. That complicates matters for the Fed, which might like to lower interest rates to help boost a slowing job market, but it could find its hands tied. Already, the next rate cut has been pushed out to the second half of the year.

"The challenges from higher oil prices, and what it means for inflation, puts the Fed in a tricky situation," says Stephen Parker, co-head of global investment strategy at J.P. Morgan Private Bank.

The war, however, won't go on forever. And when it ends, the stock market could resume its winning ways. One positive sign: the response to Oracle's third-quarter results. The company had been beaten up due to the money it's spending on AI infrastructure, but it was on track to finish the week up 2.7% after reporting better-than-expected revenue and earnings. What's more, the State Street Technology Select Sector SPDR exchange-traded fund is down just 0.3% this week, making it the third-best sector performer after energy and utilities. That could be a sign that investors are ready to move beyond the recent AI worries and do some shopping in the sector.

Opportunities might also be found in sectors that had been performing well -- until the Iran war knocked them down. Thooft likes industrials, which has fallen 3% this week on concerns about a weakening economy, but is still up 6.3% this year. He also likes healthcare, which benefits from the fact that many Big Pharma and biotech companies pay juicy dividends.

There's risk that things heat up before they cool down, a situation that may not be priced into the market just yet. The Cboe Volatility Index, or VIX, is now hovering around 28, a sign of increased concern but not yet fear. If it moves well above 30, it could be a sign to pounce, according to Mark Travis, president of Intrepid Capital. If that happens, "people should start to sharpen their pencils," he says.

And if the war does end, the stock market should benefit too. J.P. Morgan's Parker says his firm recently upped the high end of its year-end S&P 500 target to 7600, nearly 14% above current levels.

If he's correct, the current crude awakening for stocks may be short-lived.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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March 13, 2026 15:00 ET (19:00 GMT)

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