MW Here's why stocks haven't fallen harder due to the Iran war
By Gordon Gottsegen
There are a few under-the-surface factors that are supporting the stock market
Stocks have sold off this month due to fears related to rising oil prices, but the selling has been somewhat contained
The outbreak of war with Iran has caused oil prices to shoot higher and major stock-market indexes to drop lower over the past few weeks. But despite frequent headlines about new attacks, the selloff of U.S. stocks has been somewhat contained.
The S&P 500 SPX has fallen about 3.7% since Iranian Supreme Leader Ali Khamenei was killed by U.S.-Israel strikes on Feb. 28.
This has some investors asking: "Why aren't stocks down more?"
Michael Kantrowitz, chief investment strategist at Piper Sandler, tried to answer that question in a recent client note that was shared with MarketWatch.
Kantrowitz highlighted State Street SPDR S&P 500 ETF Trust SPY options data that showed high demand for put options relative to call options. Put contracts gain value when the price of the underlying stock or index goes down - so the increased demand in puts shows that investors were already hedging their positions to prepare for a move lower. Increased demand for puts also acts as a buffer for market moves lower, because investors execute those contracts once they are "in the money," increasing buying activity.
In other words, investors' hedging activity shows the market was prepared for a downturn.
Another thing helping the S&P 500 right now is actually a factor that investors were cautious about previously: market concentration.
The "Magnificent Seven" group of magacap tech stocks have contributed mightily to the S&P 500's returns since the current bull market began in late 2022. This has caused the index to become more heavily weighted toward these Big Tech companies. Those companies are all highly profitable right now - and, according to Kantrowitz, investors tend to flock to companies with high returns on equity when markets are weak.
So while the S&P 500 is overly concentrated, that concentration is skewed toward profitable companies, which is helping the index withstand some of the recent pressure seen across financial markets.
Oil prices are the main issue investors are watching when it comes to the Iran war. On Wednesday, Brent crude oil for May delivery (BRNK26) (BRN00) was trading around $111 a barrel. Yet while the spike in oil prices is grabbing headlines, stocks are more forward-looking, and Kantrowitz argued that the S&P 500 is trading more closely with longer-dated oil prices.
Right now, crude-oil futures for December (BRNZ26) are trading around $86 a barrel. The market is trying to account for both the immediate spike in oil prices and the idea that those prices may cool off slightly, while staying elevated, in the coming months.
The S&P 500 is trading more closely with nine-month oil futures
"This is more about oil than the war," Kantrowitz told MarketWatch. "Obviously they are intertwined, but if the war was going on and the Strait [of Hormuz] was open, markets wouldn't be weak. [The] last time the U.S. bombed Iran, the SPX barely moved because oil wasn't interrupted."
Another reason why the S&P 500 hasn't sold off more is because these higher oil prices have yet to reach the broader economy. While gas prices have started to tick higher at the pump, the increase in oil prices has yet to meaningfully impact corporate margins and consumer prices. In fact, S&P 500 earnings-per-share estimates are still rising.
See: U.S. stocks have been surprisingly resilient as the Iran conflict threatens global economic disruption. Thank industry analysts?
However, Kantrowitz said that stocks could fall lower if the impact of high oil prices starts to show up elsewhere in economic data. For now, that hasn't happened, but the stock market has to price in multiple outcomes. That includes both a future where the rise in oil prices is relatively contained, as well as one where prices keep climbing.
And lastly, Kantrowitz said there's an element of the "TACO" ("Trump Always Chickens Out") trade going on. Last year, President Donald Trump shook the stock market by levying widespread tariffs on nations globally - but he subsequently walked back many of those tariffs, and markets rallied as a result.
Now, investors may be expecting Trump to de-escalate the war soon, especially after saying earlier this month that the conflict would last for weeks, not months.
U.S. stocks finished lower on Wednesday after the Federal Reserve left interest rates on hold following its latest policy meeting. The S&P 500, Nasdaq Composite COMP and Dow Jones Industrial Average DJIA all ended in the red.
-Gordon Gottsegen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 19, 2026 07:00 ET (11:00 GMT)
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