Key reasons the US stock market is at record highs despite the Iran war

The US stock market recovery since April 1 has set fresh record highs for the S&P 500 and Nasdaq Composite indices following the initial decline that drove indices lower in March. US stocks are riding high, backed by bullish sentiments following President Donald Trump’s extension of the U.S.’s two-week ceasefire with Iran.

The uncertainty still prevails, and markets are, literally, taking positions based on Trump’s social media statements. But, there are other reasons too.

Although Tehran has stated that it does not want to hold talks in the foreseeable future, President Donald Trump stated that the present ceasefire would last indefinitely while Washington waits for a fresh peace proposal from Iran.

“On April 4, we said we thought the market was bottoming, and I believe it did bottom. Earnings are in great shape, and margins are strong. There are also several tailwinds, not just tax refunds for consumers, but lower tax rates and incentives for corporations. The IEEPA strike-down creates a $70 billion tailwind for the economy as well. There’s a lot to be happy about as an investor, but it feels uncomfortable in the fog of war,” says Nancy Tengler, CEO & CIO, Laffer Tengler Investments. IEEPA strike-down refers to SCOTUS striking down Trump’s tariffs.

The situation of the Iran war is reflected a lot in the price of oil. Oil prices are fluctuating and have risen back to $103 after falling to under $86 last week.

A strong earnings season has bolstered market optimism, with three out of four S&P 500 companies reporting so far exceeding revenue or earnings estimates. According to FactSet, 10% of the companies in the S&P 500 have reported actual results for Q1 2026 to date. Of these companies, 88% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 76%. Although its initial days in the earnings season, the first quarter earnings season for the S&P 500 is off to a strong start relative to expectations.

The focus will be back on the Magnificent 7 stocks. The Magnificent 7 companies are expected to continue their higher earnings growth trend into Q1 2026, with an estimated year-over-year growth rate of 22.8%. In contrast, the remaining 493 companies in the S&P 500 are projected to have a blended earnings growth rate of 10.1% for the same period, according to a FactSet study.

The US dollar index, which measures the value of the US dollar against a basket of foreign currencies, held around 98.5 on Thursday, hovering at over one-week highs. The yield on the US 10-year Treasury note climbed to around 4.31% on Thursday, reaching a more than one-week high.

According to recent research, it will probably take two or three years for the inflation spike caused by the Iran War to completely subside after the fight is over. Oxford Economics study points out that historically, inflation increases that had an oil-related source took longer to subside. Fuel prices have increased due to high oil prices, and as transportation costs rise, this trend may extend to other goods and services.

There is uncertainty regarding whether the US Federal Reserve will cut, raise, or maintain interest rates at the current range of 3.5% to 3.75%, which is a key concern for global market investors.

US inflation was trending lower, but factors like tariffs and the Iran conflict are pushing it upward, limiting the US Fed’s ability to quickly reduce interest rates.

US Markets

In January 2026, Goldman Sachs, in a report, stated that the S&P 500 is expected to rally 12% this year. At that time, the S&P 500 was at 6,800 and today it is at 7,135. Stretched valuations, growth-inflation dynamics, and global uncertainties are signalling a correction ahead for the S&P 500?

“Stretched valuations are a legitimate observation. At 20.9x forward earnings, the S&P 500 trades above its 10-year average of 18.9x. But valuations are elevated because earnings are growing, not because markets are speculative.

Full-year 2026 EPS growth is projected at 18%. Since 1950, the average S&P 500 bull market has lasted 5.5 years, delivering 191.6% in gains. This one is 3.5 years old. Record highs are not a warning signal. They are the natural state of a functioning bull market,” says Subho Moulik, Founder & CEO, Appreciate.

“The risks are real: March CPI at 3.3%, a Fed on hold, and the bulk of Big Tech earnings still to come this week. Volatility will persist. A 5-10% pullback at any point would be normal, not alarming. None of these risks, individually or in combination, breaks the structural growth story,” adds Moulik.

David Miller, Sr. Portfolio Manager and CIO at Catalyst Funds, rounds up the current market scenario — “The market is entering a period where macro, not momentum, is, in our opinion, likely to drive returns.

A big issue is that investors are now trying to handicap whether the Middle East shock, even after the recent ceasefire, becomes a short-lived geopolitical spike or a more durable inflationary event.

If oil continues to retreat and the conflict truly does de-escalate, equities have room to recover because the first quarter already reflected a meaningful repricing of geopolitical and inflation risk.

However, if energy remains elevated, Q2 becomes much more challenging because higher fuel costs start to pressure margins, consumer spending, and the Fed’s flexibility all at once. Recent reporting and Fed-related data suggest exactly that tension: markets are hoping for de-escalation, while inflation nowcasts are already showing war-related pressure on headline prices.”

Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investment in foreign securities involves significant risks, including currency fluctuations, different financial reporting standards, and varying regulatory environments. The historical performance of US stocks is not a guarantee of future returns, and gains should not be viewed as an offer or solicitation to buy. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.