US Stocks Still Lead Global Markets Since Iran Conflict Erupted
Geopolitical analysts are debating who triumphed in the Middle East conflict, but judging by asset prices the US is the clear winner. Measuring the major asset classes through a set of ETF proxies shows that American equities are the victors in the battle for performance through Friday’s close (June 26).
The Vanguard Total US Stock Market ETF () has rallied 7.8% since the US and Israel attacked Iran on Feb. 28. US real estate investment trusts () are in second place, rising a bit more than 5% since the war began.
The rest of the field is far behind, posting either modest gains or losses. For some markets, the setback since the fighting started has been steep. Global property stocks ex-US () have been hit especially hard, losing nearly 11%.
The outperformance of American shares is striking but not surprising for two reasons. First, the US has become the world’s largest oil producer and therefore enjoys near self‑sufficiency in energy. Oil is still priced globally, so the loss of crude exports from the Gulf has driven up energy prices in America. But the ability to produce oil and gas at levels that minimize reliance on imports has been a crucial factor in the US economy’s resilience.
Last week the government reported that US consumer spending—a key driver of economic activity—accelerated in May, suggesting that the effects of the Middle East conflict have had limited impact to date on Main Street business activity.
US consumer spending accelerated in May even as prices rose at the fastest pace in more than three years, suggesting Americans are looking through the fallout from the Iran war. The strength is lifting the year‑on‑year trend for , which rose 6.3% through last month, the strongest pace in a year and a half.
Strong earnings growth is also supporting the US market. FactSet reports that earnings grew a robust 23% in Q2 versus the year‑ago level, marking the second straight quarter of earnings growth above 20%.
Inflation remains the wild card for both the economy and financial markets. Analysts continue to debate whether the run‑up in headline inflation from higher oil prices will be temporary. The sharp pullback in oil prices in recent weeks appears to be persuading the bond market that if the Federal Reserve raises interest rates, the policy shift will be modest and perhaps short‑lived.
The optimistic scenario for inflation will come under more strain if the policy‑sensitive rises further. Since March, this maturity—widely followed as a proxy for expectations—has climbed sharply. But on Friday it fell for a fourth day, settling at 4.1%.
If the 2‑year yield resumes its upward trajectory and moves further above the Fed’s current 3.50%–3.75% target range, headwinds for stocks will likely strengthen. Higher Treasury yields would signal heightened concern about the inflation outlook and the need for Fed rate hikes. At the same time, bonds would present a more competitive alternative to equities.
News flow from the Iran conflict will continue to play a key role in how markets assess geopolitical and macro risks. As of this morning, yet another deal has been announced between the US and Iran to “stand down” following a series of attacks in and around the Strait of Hormuz.
The question is whether the market impact of the Middle East conflict is fading as investors become acclimated to the new status quo in the Gulf. The answer will be driven at least partly by the directional bias of the 2‑year yield in the days and weeks ahead.
