The S&P 500 seems able to shake off just about anything. Since Donald Trump returned to the White House last year, it has weathered his tariff-raising agenda and attacks on the independence of the Federal Reserve. In recent weeks, it has erased losses sparked by the US-Israeli war with Iran, and climbed to record highs, with April marking its best month since 2020. That is despite continued disruption to shipping in the Strait of Hormuz — through which a fifth of the world’s oil and liquefied natural gas usually flows — and little sign of progress towards a lasting peace deal. Last week, oil prices reached $126 a barrel, a four-year high.
On the surface, US stock prices look detached from the chaotic reality. But there is method in the market’s apparent madness. First, valuations track corporate profits and these have remained robust. While some consumer and manufacturing companies are being hit by higher energy costs, resilience in earnings elsewhere is providing an uplift for the S&P 500 overall. For instance, trading revenues at Wall Street’s largest banks have been boosted by market volatility, and energy stocks climb higher with the price of oil. Above all, strong earnings results and forecasts among chipmakers and hyperscalers in the first quarter have reinforced optimism around AI. With IT comprising around one-third of market capitalisation, the sector’s performance has propelled the S&P 500 higher.
Next, it is difficult for investors to put a price on the uncertainty. Trump has been providing regular updates about ceasefire negotiations via social media, but his posts have often been vague and contradictory — perhaps by design. Though some may attempt to trade on the daily movements, for many it has been easier to look through the noise, and avoid selling funds in S&P 500 trackers, until clearer signals emerge. Likewise, last week’s meetings of the major central banks, including the Fed, European Central Bank and Bank of England, not unreasonably, kept interest rates on hold as they monitor the economic impact of the war. Their wait-and-see approach has provided further buoyancy to stocks.