The market is full of paradoxes. Had someone said before the outbreak of the Middle East conflict that oil would trade $30/barrel higher, Treasury yields would be 35–40 bps higher, and the S&P 500 would trade at roughly the same levels, few would have believed it. Yet that is exactly what happened. After a seven-day winning streak, the broad equity index has returned to pre-war levels and is poised to push toward record highs.

S&P 500 performance

The main drivers are expectations of de-escalation in the Middle East and the US first-quarter earnings season. S&P 500 earnings per share are expected to rise about 12.5%, which is supporting buyers.

But can strong corporate results truly break the link with oil and Treasury yields? So far, this decoupling is happening against a backdrop of fatigue with geopolitical news.

The S&P 500 rally has been the result of buying the rumor of de-escalation. Yes, the first talks between the United States and Iran failed after more than 20 hours, but Donald Trump says the right people in Tehran want a deal. Hopes for peace in the Middle East provide a tailwind for the broad index. It is possible that once the war is definitively over, markets will sell the facts.

Strip out geopolitics, and the fundamentals for the US equity market look solid. The US economy is growing faster than in recent periods, driven in part by AI-induced gains in labor productivity. Moreover, the closure of the Strait of Hormuz and the associated demand for oil supplies from other regions by Europe and Asia have allowed the United States to push oil exports to a record 5 million b/d, up from 4 million b/d in 2025 and at higher prices. America is profiting from the conflict, and that inevitably supports corporate earnings.

Dynamics of S&P 500 and P/E ratio

A basis for buying equities is the fact that the S&P 500 correction has reduced fundamental valuations of US companies. Many now look undervalued and attractive — software makers in particular. Earlier in the year, there were wide fears that AI technologies would wreck this sector. Geopolitics has given investors time to differentiate which issuers to buy and which to avoid.

Thus, earnings season, US economic strength, and hopes for peace in the Middle East underpin the stock rally.

Technically, the daily chart shows that the S&P 500 is recovering its uptrend following a breakout of the key pivot at 6,845. That level now acts as critical support. Earlier established longs with targets at 6,890 and 6,950 should be held and added to on pullbacks — especially since the first target is nearly in reach.