The S&P 500 touched a record 7,005.78 on Wednesday. A gallon of gas costs $4.10. The Strait of Hormuz is under naval blockade. The war with Iran has not ended.

Markets have decided the conflict is over, or close enough. The benchmark index has climbed nine of the last ten trading sessions, gaining roughly 10 percent since a March 30 bottom of 6,316.91 — itself a 9.8 percent plunge from the January peak. The Nasdaq has risen for eleven consecutive sessions. CNN’s Fear and Greed Index has swung from “extreme fear” in March to “neutral.” The VIX, Wall Street’s volatility gauge, has declined on nine of the past eleven trading days.

“As far as the stock market is concerned, the war is over until further notice,” Ed Yardeni, president of Yardeni Research, wrote in a note.

The war is not over. A ceasefire is holding — barely — and expires next Wednesday. Talks in Islamabad over the weekend collapsed after 21 hours. President Donald Trump responded by imposing a naval blockade on Iranian ports at the Strait of Hormuz, prompting Iran’s military command to call it a “violation of the ceasefire.” Trump spent Monday threatening on Truth Social to “ELIMINATE” any Iranian ships approaching the blockade. Oil prices, while off their wartime peaks, remain nearly 40 percent above pre-war levels. The International Energy Agency called the disruption the “most severe oil supply shock in history.”

None of this has slowed the rally.

The Pavlovian Dip-Buyers

What explains the disconnect? Partly, earnings. Morgan Stanley’s Mike Wilson told clients that the median S&P 500 company is growing earnings per share at a double-digit pace — the fastest since 2021. Wilson argued the Iran selloff was a correction within a bull market, not a reversal. “The market trades in advance of the headlines,” he wrote. “Investors should do the same.”

Partly, it’s the Magnificent Seven. Since the March 30 low, a fund tracking Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla has gained 14.8 percent, according to Yardeni — nearly double the 8.1 percent return for the rest of the S&P 500. The biggest companies, which derive more revenue internationally and carry less exposure to domestic fuel costs, have powered the recovery.

And partly, it’s reflex. Wall Street has been conditioned to buy every Trump-era selloff. According to a MarketWatch tally cited by Fortune, nine of the ten best S&P 500 days since Trump’s second term began have been driven by signs of de-escalation — on tariffs or on Iran. A trader who caught only those ten sessions would hold a 35 percent compound return. The phenomenon has a name: the TACO trade, short for “Trump always chickens out,” coined by Financial Times columnist Robert Armstrong after Trump paused his “liberation day” tariffs in April 2025.

On Monday, a single post on X from New York Post reporter Caitlin Doornbos — noting that Iranian officials were still considering a US proposal — sent Brent crude down 4 percent before reversing. Doornbos later clarified her post contained no new information. The S&P 500 closed up 1 percent anyway.

Built on Hope

The rally “appears to be built on hope,” Craig Johnson, chief market technician at Piper Sandler, wrote in a note, pointing to oil prices above $90 per barrel and a war of uncertain duration.

Citi analysts echoed the concern, writing that “uncertainty remains unusually elevated, especially following the US’ announced blockade of the Strait of Hormuz.” ING warned that “markets are increasingly pre-empting a positive outcome” and urged caution.

The International Monetary Fund this week cut its 2026 global growth forecast to 3.1 percent from 3.3 percent and raised its inflation projection to 4.4 percent from 4.1 percent — both tied to the oil shock and the war’s disruption of global shipping.

Two Economies, One Headline

The rally has been good to 401(k) balances and institutional portfolios. It has been considerably less helpful to anyone filling a gas tank. US gasoline prices are up 37 percent since the war began. Diesel costs remain elevated, straining trucking, agriculture, and anyone whose wealth is not parked in equities.

The gap between market performance and lived economic experience is not new, but it is acute. The S&P 500 is up more than 1 percent since February 28. The cost of getting to work has moved sharply in the other direction.

The ceasefire expires next Wednesday. Trump said Tuesday that the war is “very close to over” — and also that “we’re not finished.” If the truce holds and talks resume, the rally has room to run. If it breaks, the TACO trade faces its first real stress test: a military escalation that cannot be paused by executive order.

Sources