A nearly 10% drawdown, followed by a swift recovery. All of this occurred within just six weeks. The S&P 500 is currently trading near all-time highs, despite the fact that there has been no resolution to the conflict in Iran, nor even a clear roadmap for what comes next. There is simply a naval blockade surrounding one of the world’s most active waterways.
Markets typically sell first and ask questions later when faced with uncertainty. That is no secret. However, Following a nearly 10% decline in the S&P 500, it took only 11 trading sessions to fully recover to pre-conflict levels. While cautious investors may view this as too rapid, recoveries have generally accelerated over the years due to significant liquidity, evolving market structures, and often more accommodative monetary policy. Investors remember that remaining invested through geopolitical volatility can lead to long-term gains, and they are choosing to re-engage.
The situation is similar in international markets. Both Korean and Taiwanese indexes reached record levels, and emerging markets have rebounded even more quickly than U.S. benchmarks.
However, this recovery has been uneven, and that divergence is significant. Despite experiencing strong rebounds, European and Japanese markets continue to trade well below their pre-conflict peaks.
In Europe, the reason is clear. The region outperformed earlier in the year, consistent with international trends, and valuations climbed alongside aggressive earnings expectations. Europe was already quite vulnerable heading into the energy shock.
Currently, the concern involves not just relative valuations, but the potential for negative earnings moving forward. The outlook is far less optimistic than in the United States, particularly because Europe lacks a primary driver of this market recovery: a significant technology weighting.
Although the S&P 500 returned to its peak levels last week, its valuation has actually declined from its highs. At the end of 2025, the benchmark traded at more than 23x on a one-year blended forward price-to-earnings basis. Today, that figure has dropped below 21x. This repricing is even more pronounced within the technology sector.
The trend involves more than just a recovery in prices. Future earnings expectations have climbed even faster, even as the conflict in Iran weighed on investor sentiment. Interestingly, the rebound began before there was any geopolitical clarity. This suggests the rally is driven less by confidence regarding the war and more by faith in fundamental data.
The primary fear during the market decline was that the consequences of the conflict would negatively impact corporate margins, capital investment, and consumer behavior. Instead, early earnings reports indicate the opposite.
Companies are exceeding Wall Street’s earnings expectations at a rate not seen in years. With approximately 25% of the S&P 500 having reported quarterly results so far, roughly 83% have surpassed earnings estimates. This is significantly higher than the five-year average of 78%. Revenue growth is also on track for its strongest performance since 2022, with 77% of companies beating revenue estimates compared to the five-year average of 70%.
With both revenue and earnings beating estimates at this pace, the recent rally to record highs suggests that the market’s confidence is supported by a solid foundation in corporate America’s fundamentals.
If the remainder of the earnings season continues as expected, it would represent six consecutive quarters of double-digit earnings growth—the longest such streak since the recovery following the 2008 financial crisis.
Nevertheless, even with these outsized growth projections, the median stock is expected to grow earnings by about 8%, which is only marginally higher than the 7.5% historical average for the index as a whole. This divergence is driven by the technology sector. Strong earnings growth confirms that this rebound is not merely a knee-jerk reaction, but a durable reflection of strength within the tech sector and the broader index.
All market and economic data as of 04/24/2026 are stated.
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Investing in emerging markets involves a greater degree of risk and increased volatility compared to developed markets. Changes in currency exchange rates and differences in accounting and taxation policies outside the investor’s jurisdiction can raise or lower returns. Some markets may not be as politically and economically stable, in addition to differences in taxation policies, and legal systems outside the investor’s jurisdiction may create additional risks. Investors should carefully consider these risks and consult with financial and legal advisors before investing in emerging markets.
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