Markets price in everything. Can you tell who will win the US–Iran conflict by looking at the S&P 500? US President Donald Trump has long declared victory, yet Tehran still controls the Strait of Hormuz, and capitulation is far off. Still, the S&P 500's outperformance versus its global peers makes it clear whose victory markets are effectively backing.

S&P 500 vs global MSCI dynamics

Over the past two months, the S&P 500 has jumped by 16%, its strongest two-month run since 2020. Since 1950, there have been only four episodes of such a rapid rally. Each time the broad index continued to trend higher, with an average gain to year-end of about 17%.

At the same time, the S&P 500 is on its longest winning streak since 1985. That performance is driven by massive demand for chipmakers and impressive corporate results. FactSet data shows that aggregate earnings rose by 28.6% year-on-year in Q1. If the reporting season ends on that note, it will be the strongest quarter since 2021.

S&P 500 winning-streak dynamics

In such an exuberantly bullish environment, banks and asset managers are reluctant to call a bubble or issue gloomy forecasts. On the contrary, Goldman Sachs has raised its year-end S&P 500 target from 7,600 to 8,000.

The rally has also been fuelled by dovish rhetoric from some FOMC members. Fed Governor Michelle Bowman said an end to the Middle East conflict would ease inflation and that the impact of the confrontation on US growth would be limited. Those comments align with the White House view that geopolitics will cause only a temporary inflation spike, followed by lower prices that could push the Fed toward monetary easing.

That said, the risk of renewed escalation has not disappeared. While the US and Iran exchange edits to the draft agreement text, Tehran is shooting down US drones and being struck on its territory — clear ceasefire breaches that both sides are publicly downplaying.

My view is that the S&P 500 can still rise further if the Middle East conflict is resolved. Reduced geopolitical risk would slow inflation and open the door for the Fed to embark on a loosening cycle.

Technically, the daily S&P 500 chart shows a doji bar forming at the top of the uptrend. A drop below its low at 7,560 would increase the risk of a reversal pattern. Nonetheless, pullbacks should still be used to add long positions, with the previously stated target of 7,700.