Oil prices have surged more than 50 per cent in a fortnight, one of the sharpest two-week moves on record, but stock markets remain relatively composed. What gives?
True, stocks haven’t been that composed, with selling accelerating and the S&P 500 hitting new lows for 2026 in the wake of escalating attacks on gas facilities in the Gulf. Still, it took nearly three weeks of war before the index finally slipped into pullback territory, defined as a decline of at least 5 per cent.
Even that’s no big deal: there have been 32 of them since March 2009’s big market bottom, notes Creative Planning strategist Charlie Bilello.
This apparent insouciance is also evident in Bank of America’s (BofA) latest monthly fund manager survey. The “frothy bull” sentiment seen in recent months is gone, says BofA, but positioning is “far from uber-bear levels” seen at prior market bottoms.
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In other words, investors are not indifferent to war, but nor are they especially spooked by it. Instead, they are largely looking through the energy shock, assuming oil prices will still ease over time. The base case is still seen as a modest hit to growth and a small lift to inflation, rather than anything more disruptive.
For now, the earnings backdrop supports that view, with Bilello noting that S&P 500 profits are estimated to grow 16 per cent in 2026. For all the geopolitical noise, it seems that the underlying story remains one of solid corporate performance.
In effect, markets are still pricing a relatively contained conflict, one that doesn’t materially hurt earnings. Damaging energy infrastructure does raise the risk of prices “staying higher for longer”, cautions UBS economist Paul Donovan, but at the same time, Donald Trump’s “urgent social media posting” on the war “suggests some awareness of domestic economic and political costs, perhaps reinforcing investors’ probability of an early US withdrawal”.
Both market pricing and fund manager sentiment suggest that investors are not ignoring the war, but they are assuming it won’t last long enough to really matter.
