Stocks are rising in the face of deepening geopolitical uncertainty, leaving some on Wall Street increasingly perplexed. U.S. stocks remained resilient on Monday after President Donald Trump announced the closure of the Strait of Hormuz and U.S.-Iranian peace talks ended without a deal over the weekend. Many said the divergence reflected investors’ increased willingness to weigh short-term risks and fears of missing out on an eventual rebound. “Last week’s rally suggests investors do not want to miss out on post-conflict upside,” Piper Sandler strategists said in a note. “Stock markets are currently pricing in an early return to normality. However, this conflict is not over and could well prolong further.” Analysts warned that the current standoff lacks “obvious face-saving countermeasures”, raising the risk that hostilities will drag on rather than being resolved in the coming weeks, a move more consistent with past conflicts. A blockade of all maritime traffic in and out of Iranian ports came into effect on Monday. U.S. Central Command said the United States would not block ships using the strait to go to ports other than Iran. Still, the S&P 500 index traded flat on Monday after rising 3.6% last week. .SPX 1M Mountain S&P 500 1 Month Investors appear to have grown accustomed to the rapid escalation that accompanies President Trump’s policy battles, eventually giving way to some form of negotiation or detente. As a result, stock markets continue to price in a relatively positive outcome, while some analysts argue that the underlying conditions point to a more prolonged turmoil. Melius Research struck a more cautious tone, citing decades of diplomatic failures between the United States and Iran as reason to doubt a quick breakthrough. “We do not expect the current ceasefire to hold,” the company wrote. “The failure of the Islamabad talks only strengthens our expectations for a prolonged conflict, further declines in global oil and natural gas (LNG) inventories, and higher ‘new normal’ prices.” Some say the next big test of that optimism may come from American companies themselves. “The big question for stocks going forward is whether the upcoming earnings season will be enough of a catalyst to break up the close relationship between stocks and oil, since corporate earnings traditionally drive stock prices,” said Clark Bellin, president and chief investment officer at Bellwether Wealth.
