Global Risk Rally Powers Past Iran War Stalemate, SPX 4.0% Higher
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
risk-oniran-war
Fazen Markets Editorial Desk
Collective editorial team · methodology
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A sustained rally in global risk assets has gained momentum through May 2026, defying the geopolitical headwinds of a protracted war in the Middle East. Data reported on 31 May 2026 shows the S&P 500 has climbed 4.0% since the conflict's outbreak, while a key global high-yield bond index has returned 3.5%. The trend underscores a market that has priced in contained regional conflict and is instead focusing on resilient corporate earnings and central bank policy trajectories.
The bullish sentiment persists despite a military stalemate in the Iran conflict, now in its third month. Historical analogues show markets can decouple from localized conflict, as seen during the 2014-2015 Ukraine-Russia war, when the S&P 500 rose 11% over a similar three-month period despite heightened tensions. The current macro backdrop features stabilizing global growth forecasts and a Federal Reserve on hold, with the 10-year Treasury yield anchored near 4.2%. The primary catalyst for the rally is not a resolution of the war, but the absence of a wider escalation that would disrupt major oil chokepoints like the Strait of Hormuz. This containment has allowed investors to refocus on solid Q1 2026 earnings beats and a soft landing narrative.
Concrete data illustrates the breadth of the risk-on move. The MSCI All-Country World Index is up 3.8% since the conflict began on 1 March 2026. Within the U.S., the Nasdaq 100 has outperformed, rising 5.2% versus the S&P 500's 4.0%. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) shows a total return of 3.5%. Global investment-grade credit spreads have tightened by 18 basis points over the same period. A comparison of key assets reveals clear winners: U.S. mega-cap tech has led, while traditional safe havens have lagged. The price of gold is up only 1.8%, and the Swiss Franc has appreciated a mere 0.5% against the U.S. dollar.
| Asset | Performance (1 Mar - 31 May 2026) |
|---|---|
| S&P 500 | +4.0% |
| Nasdaq 100 | +5.2% |
| Global High Yield Bonds | +3.5% |
| Gold (XAU/USD) | +1.8% |
The rally's second-order effects are visible in specific sector flows. Defense contractors like Lockheed Martin (LMT) and Northrop Grumman (NOC) have seen gains of 12% and 15%, respectively, on sustained order flow expectations. Cybersecurity firms, including CrowdStrike (CRWD) and Palo Alto Networks (PANW), are up an average of 9%. Conversely, European luxury goods and travel stocks have underperformed their U.S. peers due to regional economic fragility. A key counter-argument is that market breadth remains narrow, with a handful of technology stocks driving a disproportionate share of the index gains. Positioning data from futures markets and ETF flows shows institutional investors are net long equity futures and have been rotating capital out of money market funds and into high-yield bond ETFs for the first time in six months.
Two immediate catalysts will test the rally's durability. The European Central Bank policy decision on 5 June 2026 will signal the pace of rate cuts in a geopolitically sensitive bloc. The U.S. May Non-Farm Payrolls report on 6 June will be scrutinized for any labor market cooling that could reinforce dovish Fed expectations. Traders are monitoring the S&P 500's 5,400 level as a key technical resistance point after the recent climb. A sustained breach of the 10-year Treasury yield above 4.35% could pressure equity valuations. Further developments on the strategic petroleum reserve releases and OPEC+ production decisions will be critical for energy market stability.
Retail investors with diversified portfolios have likely seen gains driven by U.S. large-cap equity and high-yield bond exposure. The narrow leadership suggests reviewing portfolio concentration risk. Investors overly allocated to cash or traditional hedges like long-duration government bonds have missed this phase of the advance. A focus on quality earnings growth remains paramount as markets look past geopolitical noise.
The market reaction is starkly different. In February-March 2022, the S&P 500 fell over 6% in the first month of the Ukraine invasion due to shock over Europe's energy dependence and fears of a NATO confrontation. The current rally reflects lessons from that episode: established supply chain workarounds, full strategic petroleum reserves, and a Federal Reserve closer to easing rather than just starting a tightening cycle have provided a buffer.
High-yield bonds are credit-sensitive, not purely rate-sensitive. Their performance is tied to corporate default expectations. During contained conflicts that do not trigger a U.S. recession, such as the 1990-1991 Gulf War, high-yield bonds delivered positive returns as economic growth continued. The asset class underperforms sharply only when conflict causes a global growth shock, as seen in early 2003 before the Iraq War, when recession fears spiked.
The market has priced the Iran conflict as a contained regional event, freeing capital to chase growth where it finds it.
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