S&P 500 Up 10% During an 8-Month War: What Is the Market Smoking?

Let's set the scene. There are tankers on fire in the Strait of Hormuz. Limpet mines. Thirty confirmed vessel attacks in October alone. Ship traffic through one of the world's most critical energy chokepoints collapsed from 135 vessels per day to as few as 2. Jet fuel is up 80%, diesel is up 20% across 95 countries, and the FBI just had a very bad week involving $6.3 billion disappearing from Binance. And yet, the S&P 500 is up roughly 10% since the US-Iran war began. Totally normal. Nothing to see here.

A Felix Nikolas Prehn breakdown on YouTube puts it bluntly: the people who panic-sold or loaded up on gold as a hedge have taken significant losses. Gold is down approximately 27% since the conflict started, mostly because oil-importing nations like Turkey sold gold reserves to defend their currencies. Meanwhile, strong AI earnings, resilient consumer spending, and 3.4% GDP growth kept institutional money in equities. The market, it turns out, is not a geopolitical morality play.

That said, the week ending October 30 showed cracks forming. The Nasdaq entered its third correction of 2026, falling 2% on the week, with the S&P 500 dropping 1.8% on Friday alone. The VIX spiked 12.91% on October 30, closing at 19.42, which is still below crisis territory but is a flashing yellow light. Bloomberg's Bloomberg Podcasts noted that BMO senior economist Jennifer Lee sees a silver lining: the tech selloff is easing interest rate pressure, which is an interesting way to say "maybe the pain is helpful." The 10-year Treasury yield pulled back to 4.93% as safe-haven flows picked up, suggesting bond buyers are more nervous than equity buyers right now.

The rotation story is real and it matters. The Dow dropped 1.09% on October 30 but had been grinding positive earlier in the week, while the Nasdaq bled 1.38%. That is a classic growth-to-value rotation signal. With AI spending sustainability now being questioned publicly and midterm elections creating policy uncertainty, the easy money on tech momentum trades looks thinner than it did in September.

The one wildcard nobody is pricing cleanly is the mediation track. Iranian envoys and Qatari mediators are now three days into talks, and Trump's own quote, "it's going to get wrapped up soon," is either reassuring or the most unsettling thing you've heard this week depending on your risk tolerance. If Hormuz reopens, energy costs normalize, consumer inflation eases, and suddenly the Fed has more room. That scenario is genuinely bullish for everything except oil stocks and defense contractors.

The market has spent eight months proving that bad headlines and rising prices can absolutely coexist. The question going into November is whether the Nasdaq correction is the market finally doing its homework, or just another dip that looks obvious in hindsight.