Remember that steep, scary selloff we had when the war in Iran started and oil prices spiked? Well, the stock market has just officially taken it all back. The S&P 500 rallied above 6,900 on Tuesday, surpassing its closing level from February 27. That means every single point lost over seven brutal weeks of war-driven volatility has been erased. The recovery has been almost as sharp as the initial drop.
The SPDR S&P 500 ETF Trust (SPY) is up 0.40% to 6,913, on track for its ninth positive session out of the last ten. From a peak above 6,950 in late January, the index had collapsed to a low near 6,350 after the Strait of Hormuz closure sent oil above $100 a barrel and forced a rapid repricing of inflation, growth, and Federal Reserve expectations. Now, seven straight weeks of losses have been undone in just ten trading sessions. Meanwhile, the Nasdaq 100 is heading for its tenth consecutive gain—its longest winning streak since 2021.
What The Rally Is Pricing In
David Morrison, senior market analyst at Trade Nation, notes that major indices like the S&P 500, Nasdaq, Russell 2000, and Dow are all now above their pre-conflict levels and within striking distance of all-time highs. The S&P 500, for instance, sits just 1.7% below its record intraday high from January.
Morrison points to a key signal in the oil market: the steep backwardation in crude oil futures, where near-term prices trade well above longer-dated contracts. This, he says, indicates that markets expect oil prices to fall as the conflict resolves.
"Investors believe that the war will end soon, although whether that means in a couple of days, weeks or months isn't yet clear. What is clear is that the markets don't believe it will take years, and the steep backwardation in crude oil prices supports this view," Morrison said.
"While it would still take years to repair the damage to the Gulf States caused by the war and rebuild oil reserves, news of an end to hostilities is widely considered likely to trigger a strong rally across risk assets," he added.
The Inflation Picture Behind The Move
Tuesday's economic data gave the rally an extra boost. The Producer Price Index for final demand rose 0.5% in March, matching February's pace and coming in well below the 1.1% consensus estimate. More importantly for stock investors, the core PPI—which strips out volatile food and energy prices—rose just 0.1% for the month, slowing from 0.3% in February.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, says that core PPI deceleration is the number that really matters for the market. The fact that underlying inflation at both the consumer and producer level is running below 0.3% is good news, according to Zaccarelli.
Assuming the Strait of Hormuz can be returned to normal operations, he says, "the underlying trends heading into the Iran war make it much more likely that disinflation can continue and we should be able to price in rate cuts later this year."
Goldman Sachs Shares Similar Baseline
Goldman Sachs Global Investment Research is on a similar page. The bank expects two 25-basis-point rate cuts from the Federal Reserve in September and December, driven by a combination of rising unemployment and modest further progress on core inflation as tariff effects drop out of year-over-year comparisons.
Since the war began, Goldman has raised its December 2026 headline Personal Consumption Expenditure (PCE) inflation forecast by 1 percentage point to 3.1%. However, it kept its revision to core PCE—the Fed's preferred inflation gauge—to a more modest 0.3 points, bringing it to 2.5%. That's a signal the bank views the energy shock from the conflict as largely a one-time event rather than a structural shift that will keep inflation persistently high.
.jpeg)
