US stock markets hit all-time highs despite inflation and conflict with Iran
The S&P 500 and Nasdaq Composite closed at record levels, driven by gains in tech stocks. The market was supported by President Trump's visit to China, accompanied by the heads of major technology companies.
The gist: what's really happening
The S&P 500 and Nasdaq hitting records amid PPI at 6.0% and war with Iran is not a paradox but a classic "K-shaped" divergence taken to the extreme. The market no longer reflects the US economy—it reflects the balance sheets of the largest tech corporations and their ability to profit from chaos. While retailers and consumer discretionary manufacturers are drowning in rising costs, Nvidia, Apple, and Cisco are dragging indices to new heights because their business models either do not depend on physical logistics through the Strait of Hormuz or directly benefit from the militarization of the conflict. The S&P 500 crossed the 7,500 mark for the first time in history—and it happened on the same day that ten-year Treasury yields signaled a recession, while the Dow Jones Industrial Average fell amid the tech sector rally. The market has split in two, and this split is masked as a "bull trend."
Timeline and context
To understand the nature of this rally, we need to rewind three months. The first quarter of 2026 was the worst for the S&P 500 since 2022: the index plunged 7% amid the start of military operations against Iran and the closure of the Strait of Hormuz. The "Magnificent Seven"—Microsoft, Tesla, Apple, Alphabet, Meta, Amazon, and Nvidia—all went negative, with Tesla and Microsoft each losing more than 20%. The AI bubble seemed to be deflating.
But in April, the situation reversed. On April 28, two events occurred that the market read as a green light. First, the US and Israel agreed to a temporary ceasefire with Iran—fragile, but enough to revive hope for the reopening of the strait. Second, the first-quarter earnings season began, and 83.2% of S&P 500 companies beat consensus profit estimates. Not just beat—profits grew 27% year-over-year, marking the sixth consecutive quarter of double-digit growth.
By May 13-14, the ratchet effect kicked in. Trump's visit to Beijing, accompanied by CEOs of major tech companies, was seen by the market as a guarantee that China would not escalate the trade war and might help diplomatically pressure Iran. At the same time, Morgan Stanley raised its year-end S&P 500 target to 8,000 points, citing expected profit growth of 23% in 2026. Finally, the IPO of Cerebras Systems—an AI chipmaker that surged 68% on its first trading day after raising $5.5 billion—convinced investors that the AI bubble had not burst but was only inflating. Nvidia gained 4.39% in a day, approaching a market cap of $6 trillion.
Who wins and who loses
Three groups are winning. The first is chipmakers and AI infrastructure: Nvidia, Cisco (up 13.41% after a strong forecast), ON Semiconductor (+11.1%), Micron Technology (+4.8%), Texas Instruments (+3.8%). Their orders are growing explosively because corporate America, spooked by supply chain disruptions due to Hormuz, is pouring hundreds of billions of dollars into localizing data centers and AI capacity within the US.
The second group is companies whose stocks rose on geopolitical news. Ford Motor surged 13.2% (its biggest daily gain in six years) after Morgan Stanley called its partnership with China's CATL an "underappreciated competitive advantage." In reality, the market is pricing in Ford becoming a beneficiary of US-China rapprochement: if Trump and Xi Jinping
— Editorial Team
