Even as the Iran conflict stokes geopolitical tensions and sustains high energy prices, stocks held up better than might be expected. Better still, markets may stabilize thanks to persistently strong corporate earnings.
Though global oil prices have gyrated day to day in response to new developments, they remain sharply higher than pre-conflict levels at around $100 per barrel. And oil futures markets continue to signal supply tightness in the near term.
Historically, oil shocks have often triggered recessions and bear markets. Yet even at its maximum drawdown in response so far to the Iran conflict, the S&P 500® Index benchmark fell less than 10%, as expectations for accelerating earnings growth among S&P 500 companies offset price-to-earnings (P/E) valuations that declined by as much as 20%. By April 14, the US large-cap stock benchmark was up nearly 2% this year, just 1% shy of its all-time high set January 27.
In short, things could be worse.
“The cyclical bull market, now 45 months strong, has been bent but not broken,” says Jurrien Timmer, Fidelity’s director of global macro research. “In the grand scheme of history, a 10% decline happens about every other year. One might say that’s not much, given all the bad stuff going on.”
Said another way, stock prices have fallen less than would be expected because corporate profits are still growing fast. The forward earnings estimate has been growing at a robust 17% annual rate, and the momentum has thus far not been affected by the headlines.
Profit margins, a measure of how much money a company keeps after paying its expenses, have also been reaching new highs—around 15% in early April for the S&P 500—helping sustain stock valuations.
Indeed, the volatility of the early days of the Iran conflict had, by April, moderated amid growing optimism that more oil tankers would pass through the Strait of Hormuz, easing the global crunch in oil and natural gas supply.
Bubble watch
Just 6 months ago, the market’s top concern was whether the AI boom was turning into a bubble. Fortunately, that did not happen; otherwise, the drawdown could have been more painful, Timmer says. Compared with the unchecked enthusiasm for tech stocks in 2000, investors have been more skeptical, keeping AI leaders’ valuations in more sustainable ranges.
Timmer observes the S&P 500 recently traded around 23 times trailing earnings, which is high but well below the triple-digit valuations applied to tech giants in previous booms. Even the largest tech leaders, the “Magnificent 7,” recently traded at a relatively modest P/E of 25, based on estimated earnings for the next 12 months.
“The fact that the space is scrutinized like this is a very good sign,” he says.
The long-term trends remain positive, Timmer says, though the pace of growth is likely to be slower and less consistent compared with recent periods. Market valuation models suggest stocks are expensive relative to their average earnings over the past 10 years, signaling future returns could decline to single-digit rates from the robust 15% growth rates of the past decade.
Keep an eye on rates
Commodities and gold have outperformed stocks so far in 2026, historically a characteristic of bear markets. Timmer, however, cautions that commodities are too volatile to be a sizeable long-term holding for most investors.
On the downside, traditional diversification strategies, such as the 60/40 mix of stocks and bonds, have been challenged because stocks and bonds are generally moving in the same direction.
Fixed income markets, however, could continue to experience volatility. The yield on 10-year Treasurys has continued to hover near 4.5%—historically a threshold for market distress, according to Timmer. If benchmark long-term rates break higher, he says, it could put further pressure on both stocks and the bond market.
The bull market lives on
For investors today, Timmer says, the lesson is to stay diversified, but be prepared for potentially slower, bumpier gains for the foreseeable future.
The encouraging news is that the bull market that began in 2022, during the tail end of the pandemic, remains firmly intact, Timmer says. A bull market refers to an extended period of rising stock prices, usually supported by economic fundamentals and expanding corporate profits. In the current situation, the market is seeing resilient earnings, elevated investment spending (i.e., CapEx), and historically strong profit margins sustain upward momentum in stock prices.
Importantly, CapEx as a percentage of revenue among S&P 500 companies continues to reach multi‑decade highs, suggesting businesses are reinvesting aggressively in their future growth. It’s a signal that earnings power and shareholder value creation may continue to strengthen in the years ahead.
“Earnings estimates have been flying. And it’s not just due to the energy sector because that’s just 3% or 4% of the market, not enough to move the needle,” Timmer says. “Something is really happening in the fundamentals, whether it’s AI or the aftereffects of the One Big Beautiful Bill Act. That resilience in earnings and in the economy has allowed the stock market’s price decline to be very modest, with most of the hit being taken on the valuation side. That, ultimately, could present an opportunity.”