Fun With Charts!
If you’re wondering why (and how) the stock market keeps going up during a war with Iran that has caused oil prices to spike, you’re not alone. It seems the Wall Street Journal1 can’t write enough articles about why the market is up or down, and what it may or may not do next. Spend time reading all of them, and the result will be two Advil for your headache.
All we can report is that stock prices are driven by profits. They always have been, and it’s likely they always will be. If a company produces widgets and increases its widget profits each year, history tells us that the company’s stock price will increase over time.
If the widget company introduces a new line of widgets that will generate much more revenue in the future, the stock price will probably increase substantially. And if a larger company decides to buy the widget maker, then it’s also likely that there will be a further increase in the stock price. (Of course, the reverse would happen if the widget maker were to lose money.) In the simplest of terms, that’s how the stock market works.
Even in the midst of a war, if investors believe companies will grow their profits, they will invest in future growth. And that may be what’s happening now.
But even if that interpretation is wrong, the chart below shows that markets perform well when major geopolitical events, such as a war, end. As we’ve said so many times, investing is a marathon, and disruptions along the way are to be expected. They should not, however, get in the way of the long-term goal: to grow assets over time.
In terms of how the stock market performed when the war started, the S&P 500 “peaked on Jan 27, and then fell 9.1% through March 30th. By April 15, a mere 16 days later, the market had returned to a new high…Kevin Khang, senior global economist at Vanguard, examined every market decline of at least 9 percent since 1950. There were 32 of them…and the recent Iran war rebound has been the fastest of all. For these rebounds, the median length – the point in the middle – was 107 days. The average rebound took much longer, 309 days. The stock market’s recovery this time occurred in the comparative blink of an eye.” 2
Investors in the bond market, however, focus on interest rates and companies' ability to make timely payments on their debt. This year, the bond market sees things a little differently than the stock market.
As you may recall, when interest rates rise, bond prices generally fall. Let’s say you paid $1,000 for a 5-year bond with a 4% coupon. If interest rates go up and you can now get 4½% on a similar bond, nobody will pay you $1,000 for your bond. To get your $1000 back, you would have to wait until the bond matures. If you were to sell it early, you would lose money.
The chart below shows how the Bloomberg US Aggregate Bond Total Return Index - a common index to assess the bond market’s performance - has done year-to-date through May 8th. Yes, the underlying bonds are still paying interest, but the market is cautiously waiting to decide whether interest rates will rise or fall in response to the war, oil prices, and inflation.
1 Crill, Wes. “Market returns during past geopolitical conflicts,” Dimensional.com, May 5, 2026.
2 Sommer, Jeff. “Stocks Are Exuberant. Bonds Are Subdued. Why the Divergence?” The New York Times, 8 May 2026.
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