3 surprising clues markets may be ignoring

The Middle East conflict has upended markets in the past few weeks.

In addition to the obvious areas of fallout—damage to overseas energy infrastructure, impacts to global oil prices, and disruptions to global shipping—there have been less-obvious ones. For example, investors have been trying to forecast what hotter headline inflation might mean for the Fed’s upcoming decisions on interest rates, and what a prolonged conflict might mean for the US fiscal outlook.

The market has been grappling with these questions in real time, in a push-and-pull that has so far seen global oil prices rise by as much as 70%, seen price-earnings (P/E) ratios fall by as much as 20%, and taken the S&P 500^® Index within striking distance of correction territory.

Almost 2 months into the conflict, a clean resolution seems as elusive as ever. And yet, that uncertainty might not be a reason to avoid the market. My historical analysis suggests that the conflict may have surprisingly little impact on long-term potential returns.

In fact, for opportunistic investors, the recent market disruptions may have helped create an attractive entry point into tech stocks. Aside from geopolitical developments, I’ve also been seeing notable bullish signals for another key market segment: housing and homebuilder stocks.

Read on for more on 3 key investing themes to watch now.

1. Why stocks may climb the wall of worry

Geopolitical shocks tend to dominate the news cycle, and it’s impossible to predict how these shocks can impact markets in the short term.

But their long-term impact on markets often turns out to be less severe than expected. I looked back at 11 major geopolitical shocks, from Pearl Harbor to Russia’s invasion of Ukraine. The S&P 500 posted positive 12-month returns after 8 of those events. Looking at all 11 events together, the market saw an average gain of about 8% over the next year—similar to the market’s long-term annual average.

Some investors worry that the current energy shock could trigger a replay of the 1973 oil embargo, which was one of the few episodes that saw negative returns over the next 12 months. I think that’s unlikely, partly because the economy is so different now than it was then. For one thing, spending on energy takes up a much smaller share of household income. Energy spending as a portion of household income rose through much of the 1970s and peaked above 7%. Today, it sits below 3%, and it has been in decline for years. The takeaway: Higher energy costs don’t hit consumers as hard as they did 50 years ago.

The global energy landscape has evolved too. While supply disruptions in the region still present challenges, the Middle East isn’t the energy chokepoint it used to be. In the 1970s, the Organization of the Petroleum Exporting Countries (OPEC) produced about two-thirds of the world’s oil. It only produces about half today. Over the same period, the US has shifted from a net importer to a net exporter of oil, helping to insulate the domestic market from some of these pressures.

Another worry weighing on many investors is the inflation outlook—and specifically, the concern that higher inflation could eventually force the Fed into interest‑rate hikes. While the Fed is unlikely to respond to higher energy costs alone, some investors worry that rising energy prices could ripple through the economy, lifting costs for transportation, manufacturing, and services, and ultimately push up core inflation. That logic makes sense in theory but often hasn’t held up in the real world. In the past, big 6-month jumps in oil prices have corresponded with higher core inflation only about half the time—a coin flip. As for the connection between oil-price spikes and interest rates, the bigger the 6-month increase in oil prices, the less likely the Fed was to raise rates.

Ultimately, my research suggests the conflict and the resulting jump in oil prices may not prove to be as big a headwind as investors fear. Meanwhile, investors may be overlooking important tailwinds. One such tailwind that’s recently caught my eye is growth in unit labor costs, meaning the costs companies pay per unit of output. This metric recently fell to the lowest 25% of the range since 1962. That level has been associated with big increases in corporate profit margins in the past. If the pattern holds, earnings growth and stock returns may benefit.

2. A strong bullish signal for tech stocks

Market turmoil often unearths opportunity. Right now, one of the most interesting areas of potential opportunity I’m focused on is the tech sector.

Tech stocks have been under pressure this year, in part due to concerns that AI could disrupt software firms’ business models. Recent stock declines pushed the sector’s relative valuation (meaning, the P/E ratio of tech stocks, based on estimated earnings, compared with the P/E of the broad market) to the second quintile of its range since 1976. Historically, this has been a constructive setup: After comparable relative valuations in the past, the sector outperformed the market over the next 12 months 69% of the time.

The story is especially dramatic in software, where the relative forward P/E ratio recently fell to the bottom 15th percentile of its historical range. Meanwhile, average software profit margins recently hit their 100th percentile. In effect, the market has been pricing software for disaster even as the industry has been reaching new heights of profitability.

It’s unusual for any industry to experience such a wide discrepancy between valuations and profitability—and especially rare for software. When other tech industries have experienced gaps of this magnitude (an 80 percentile point difference between profitability and relative valuation) they had strong odds of outperforming the market over the next 12 months. Software companies may be under threat from AI, but if they avert disaster, the stocks may surprise to the upside.

3. The housing market may be finally ready for its rebound

The housing market has been in the doldrums for years, as high mortgage rates have put a damper on turnover and effectively “locked in” existing homeowners who might want to move, but don’t want to give up their older low-rate mortgages.

But certain signs suggest housing finally may be nearing a turning point. The gap between rates on existing mortgage and new mortgages narrowed between June 2024 and December 2025—easing that “lock-in” effect. After similar moves in the past, housing turnover increased over the following year 70% of the time. The recent rise in mortgage rates may hold back turnover. But I think concerns about higher inflation and interest rates may fade, given their relatively weak historical relationship to oil prices, potentially allowing mortgage rates to resume their descent.

What’s more, low housing turnover tends to be a temporary phenomenon: People can only wait out the market for so long before they need to move. That accumulation of pent-up demand may be why periods with the lowest housing turnover have been followed by the strongest average growth in home sales. Some investors worry this time could be different, especially if interest rates or unemployment rise. But the pattern has held even during periods with higher interest rates or unemployment.

For investors looking for tactical ideas, there’s a key potential beneficiary to watch: homebuilders. Shares of homebuilders have outperformed the market by wide margins, on average, in 12-month periods after housing turnover was in the lowest 10% of its range.

How to search for investing ideas

Based on this analysis, I believe the conflict in Iran may not disrupt the economy as much as some investors fear, giving stocks potential for upside in the coming year—particularly considering the tailwind from lower unit labor costs. Against this backdrop, I think software and housing stocks could be among the market leaders.

Investors interested in matching investing ideas to these themes can search for stocks using the Fidelity Stock ScreenerLog In Required . Or, to search for mutual funds or ETFs that focus on these themes, investors can use the Fidelity Mutual Fund Research tool or ETF ScreenerLog In Required .