Equities rally despite geopolitics

U.S. stocks are doing something that looks almost rude. Geopolitics got worse, oil jumped, inflation re-accelerated, and equities still pushed higher. By Friday, May 1, the S&P 500 had closed at 7,230.12, near fresh highs, even as investors were still digesting a hotter March inflation print and the economic fallout from the spring’s Middle East shock. (fred.stlouisfed.org) ### Why didn’t geopolitics break the rally? Because the market decided the shock looked survivable. April brought a burst of geopolitical stress tied to Iran and energy markets, but once investors stopped pricing a worst-case escalation, risk appetite came back fast. JPMorgan’s April market review says global equities basically looked through the turbulence and rotated back (fred.stlouisfed.org)ferred earnings stories over macro fear. (am.jpmorgan.com) ### What actually held stocks up? Earnings and concentration. The market still trusts the biggest U.S. companies to keep delivering profit growth, and a lot of that confidence runs through the AI buildout — semis, cloud, data-center spending, and the software names tied to that stack. Goldman’s latest 2026 ou(am.jpmorgan.com)ut not wildly above the recent norm. (goldmansachs.com) ### So inflation wasn’t a problem? It was a problem — just not a market-killing one, at least not yet. March core PCE rose 3.2% from a year earlier, and headline PCE hit 3.5%, both moving the wrong way for a Federal Reserve that wants cleaner disinflation. But the market seems to believe this is messy inflation, not runaway inflation. That(goldmansachs.com)p for earnings growth. (bea.gov) ### What did GDP say? The economy didn’t roll over. First-quarter real GDP grew at a 2.0% annualized pace after just 0.5% in the fourth quarter of 2025. That is strong enough to calm recession fear, but not so strong that it automatically kills the case for eventual rate cuts. Basically, the market got a “still growing” signal without a full-blown overheating signal. That’s a pretty friendly mix for equities. (bea.gov) ### Then where’s the tension? Valuations and breadth. When a market rallies through bad headlines, the obvious question is whether investors are getting too comfortable. Goldman says the S&P’s multiple is close to its five-year average, which argues against a classic bubble call. But other strategists are still worried that too much of the rally depends on expen(bea.gov)flation broadens, that comfort can fade quickly. (goldmansachs.com) ### Why are people talking about rotation? Because even bullish markets change leadership. If the index keeps rising but inflation stays sticky, investors may want more than one winning trade. That is why the conversation has shifted toward lower-PE sectors, dividend payers, and parts of the market that benefit from broader earnings partic(goldmansachs.com)neath. (marketinsights.citi.com) ### What’s the next real test? Labor data and the next inflation prints. The April jobs report lands on May 8, 2026, and it matters because this whole setup depends on growth staying solid without reigniting a broader inflation spiral. If payrolls, wages, and services inflation all stay hot together, markets may have to rethink the “look through it” trade. (bls.gov) ### Bottom line? The rally is real, but it is not carefree. Stocks are climbing because investors still see durable earnings — especially around AI — and an economy that is slowing just enough to avoid panic. The catch is that geopolitics has not disappeared, inflation has not been solved, and the market is now priced for resilience. That leaves less room for mistakes.