The War That Scared Everyone. The Market That Didn't Care.

The S&P 500 just hit an all-time high.

In the middle of a war.

While the Strait of Hormuz is still partially blocked. While ceasefire talks have stalled. While both sides are still pointing fingers and making threats.

And most people are sitting there scratching their heads going, how is this possible?

I want to explain exactly why. Because once you see this pattern, you’ll never look at a geopolitical crisis the same way again.

Before I walk you through what happened, I want to show you something.

This is a chart of how the market moved over the last six weeks. At first glance, it looks like chaos. But when you break it down, it actually follows a very predictable pattern.

Three phases. Every geopolitical crisis goes through them.

Let me walk you through each one.

Let me take you back to late February.

Trump announced strikes on Iran. The Strait of Hormuz, the channel that carries roughly 20% of the world’s oil supply, got shut down. Oil prices spiked. Markets dropped. Social media lit up with doomsday predictions.

To any human being (including myself), the fear was justified. Not because of clowns people saying “wOrLd WaR 3 iS gOnNa HaPpEn”, but rather it was because of oil supply.

When oil supply gets disrupted, costs go up for producers. Producers pass it on to consumers. Inflation rises. The Fed can’t cut rates. Growth slows. It’s a chain reaction that hits everything.

So the next few weeks were rough. Weekend after weekend, new escalations. Oil facilities on fire. Trump making threats. VIX spiking above 30, the highest in nearly a year. The fear gauge hitting extreme fear territory. Everyone saying the same thing: this is going to get a lot worse.

That was Phase 1.

When something new and scary happens and nobody knows how bad it’s going to get, the market doesn’t just price in the bad news. It prices in the uncertainty. And uncertainty is what the market hates most.

Around late March, a different signal started coming through.

Trump posted that the US had been in “very good and productive conversations” with Iran regarding a resolution.

Did those talks actually happen? Not exactly. Iran’s foreign ministry called it false.

But here’s the thing. That’s not the point.

The point is what that statement signals.

When a president who had been threatening to bomb Iran “back to the Stone Ages” suddenly starts talking about productive conversations, it tells you one thing clearly: he wants a way out.

He extended the pause on attacks. Then extended it again. The market started reading between the lines.

This was Phase 2.

Both sides were still fighting. But the signals underneath the headlines told a different story. Trump was looking for an off-ramp. Iran, despite its tough public stance, proposed a 5-year suspension of nuclear activities, its opening bid in what is clearly now a negotiation. You don’t make an opening bid if you don’t want a deal.

By this point, the market was already starting to look past the noise.

On April 8, a two-week ceasefire was agreed, mediated by Pakistan.

It’s fragile. Both sides have accused the other of violations. The Strait of Hormuz is still largely blocked. Talks over the weekend just stalled again, with the US cancelling its trip to Islamabad and Iran’s foreign minister flying to Russia.

And yet, on Monday, the S&P 500 hit another record high.

The Nasdaq has been on an 11-day winning streak, matching a run not seen since 1992. Since the March bottom, the S&P is up over 10%. It has fully erased every single loss from when the war began.

This is Phase 3.

Not because the war is over. But because the market is forward-looking. It doesn’t wait for the final headline. It prices in what it thinks will happen next. And what it thinks will happen is this: neither side wants a prolonged war forever. Both sides are getting squeezed. A deal, in some form, is coming.

As one economist put it: the market is essentially betting on the “TACO trade”. Trump always chickens out when the economic pain gets bad enough.

Whether you agree with that or not, the market has placed its bet. And so far, it’s winning.

Here’s what I find most important about all of this.

This is not the first time.

Almost every geopolitical events in history followed roughly the same arc.

Phase 1: shock, uncertainty, markets drop.

Phase 2: both sides establish their limits, signals of negotiation start appearing.

Phase 3: certainty returns, markets recover, often before the actual resolution.

In past US-involved conflicts, equity markets experienced short-term volatility followed by recovery. During the 2003 Iraq War, the S&P 500 rose over 25% in the first full year after the invasion began. The Gulf War saw an initial 11% decline, followed by a strong relief rally.

The pattern isn’t that wars are good for markets. It’s that uncertainty is the real enemy. And once certainty starts to return, even partial certainty, the market moves fast.

If you wait for the all-clear before acting, you’ve already missed the best of the recovery. By the time the war is officially over, the market will have priced it in long ago.

Think of it like an umbrella. If you wait until it’s pouring before you buy one, it’s too late. The market doesn’t move based on what’s happening right now. It moves based on what people think will happen in the next three months, six months, one year.

I’m not going to tell you the war is definitely over. It isn’t. Talks have stalled. The Strait of Hormuz is still causing oil disruption. Oil prices are still trading above $100 per barrel.

And elevated oil doesn't just stay at the pump. It flows downstream into producer costs, consumer prices, and CPI. We already saw a glimpse of that. March CPI jumped to 3.3%, up sharply from February's 2.4%, driven largely by the energy spike. If oil stays elevated, that pressure on inflation isn't going away.

But here’s what doesn’t change.

Every major geopolitical crisis in modern history has followed the same arc. Shock. Uncertainty. Recovery. And the investors who stayed in quality businesses throughout came out ahead, every single time.

If you're investing in high-quality businesses for the long term, markets at record highs today will look cheap in five years. History has proven this, time and time again.

The worst thing you can do as an investor is to place the bet that the world will not find a way to move on.

It always does.

Till the next post, ciao!

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