Not So Dire Straits

Markets don't always sink when economies sag.

Two months into the U.S.-Israeli war with Iran, global stock and energy markets are telling sharply different stories. Stock markets are substantially higher than their March lows, while oil contracts have risen above $100 a barrel. Physical delivery of oil is even pricier; reflecting the supply shock that has resulted from the closure of the Strait of Hormuz, it is at more than $150 a barrel. Meanwhile, the removal of more than 10 million barrels a day from the global supply has caused surges in fuel prices and disruptions in the fertilizer supply just as Northern Hemisphere farmers plant crops.

Yet, global equity markets are marching to a different beat: The S&P 500 is up more than 12 percent since hitting a low at the end of March, and global indices have seen similar increases. Even emerging-market stocks, which are most vulnerable to Persian Gulf oil disruptions, are up more than 13 percent; Taiwan and South Korea are up more than 20 percent. Commodity prices and oil rationing throughout Asia are saying that recession may be imminent. Stock prices, on the other hand, suggest that the war and the strait’s closure will not derail long-term growth.

If you have to choose, go with the stock markets’ story. This is not to negate the real world harm to real live humans. It’s just that markets don’t have a conscience. They reflect only the underlying health of the shares of companies in countries and sectors that trade publicly. And though stocks represent national economies, they are not the same as those economies. Meta generated more than $200 billion in 2025 revenue; it can thrive regardless of whether its users do. That may be a depressing fact, but it is a fact nonetheless. Data centers will continue to be built at a frenzied pace to feed the hungry AI data maw whether or not middle-class citizens can afford a home.

Large companies like Walmart, Amazon, and Best Buy can juggle business costs more easily than countries can shift defense spending or pensions. So it’s a mistake to assume that because a domestic economy is weak, its stock market must be too. While recessions weigh on prices, markets frequently anticipate problems, factoring them in before macro-economic data reflects them. That’s why markets don’t necessarily sink when economies sag. Major economic disruptions — such as the Great Depression, the 2008-2009 global financial crisis, and, briefly, Covid in the spring of 2020 — do impact markets negatively, and dramatically, but more garden-variety recessions often do not, at least not for long.

That dichotomy between how markets behave and how millions of people experience economic downturns is disconcerting — both cognitively confusing (how can markets thrive when most people aren’t?) and seemingly impossible (how can companies thrive when their customers aren’t?). But here again, these are often apples and oranges. Public companies are unique entities; they can juggle costs and salaries and supplies far more quickly and nimbly than countries or individuals can. A person with a gas-powered car can’t simply switch to biofuels or solar, or easily adjust other living expenses to compensate for rising prices at the pump. Companies can juggle such variables more easily, if with some effort. Countries and national governments are saddled with the cost of national defense, roads, pensions, benefits. Companies have few of those.

What markets do react to is uncertainty. They sank in March as the parameters of the Iran conflict were being digested, then rose in April once those parameters became clear. If bombings resume or Red Sea routes are blocked by the Houthis, share prices will likely slide again. For now, though, markets are looking beyond the conflict.

We also need to consider that the Iran warlette may have reduced expected returns, as stocks seemed poised to run higher in February. So, while equities in the U.S. are up about 4% since the end of October 2025, they might have been up substantially more had it not been for recent Mideast events.

Ultimately, the relationship between equities and economies is nuanced. Large companies are more able to adapt to systemic shocks than a country or an individual saddled with rising gas costs. Markets lack a moral connection to real-world suffering; they reflect that even a significant energy crisis is only one part of a larger economic story. Apple will continue to sell tens of millions of iPhones. Data centers will continue to crop up at breakneck speed and extraordinary cost. Americans (and a lot of others around the world) will continue to drink Coke and eat PepsiCo snacks. The oil shock is a major story, but the markets are reminding us that there are plenty of others, many of which are about resilience and robustness. We should listen to those amid the drumbeats of war.

You can read a related version of this piece, just published in The Washington Post, here.