Gas prices are higher. Grocery prices are higher.
And the stock market is higher, a combination that, at a glance, wouldn’t seem to make much sense.
While the war in Iran and the closure of the Strait of Hormuz roil international commerce, technology stocks have jumped nearly 20% this month per S&P Global data — marking their strongest monthly performance since 2002. This resilience largely is driven by a tech-heavy core of market leaders, according to Fidelity Investments.
Jim Sinegal, senior investment analyst at Fragasso Financial Advisors in Pittsburgh, said several factors play into the divergence between an economy with rising prices and a market with rising stocks.
“Firstly, if you look at the actual underlying job data, the unemployment rate is still pretty low, and jobless claims recently came in a little lower than expected,” Sinegal said. “People are still working and still, to some extent, spending. That consumer spending trend hasn’t taken a hit yet. Whether that changes due to higher prices is still a question.”
Stock prices flitter up and down for myriad reasons. But at its heart and over the long term, a stock’s price depends on two things: how much money a company is making and how much an investor is willing to pay for every $1 of those earnings.
The latter part of that formula tends to swing with interest rates and the balance of investor greed versus fear. When fear prevailed in the early days of the war, stock prices sank. The worry was that a long-term surge in oil prices could send a debilitating wave of inflation crashing into the global economy.
Since late March, expectations have built that the United States and Iran will avoid a worst-case scenario. It would be in both countries’ economic interests to do so, and for Iran’s leadership, an end to the war also would likely mean survival. The ceasefire that the sides agreed to this month is holding, though it remains tenuous.
The market’s shift away from abject fear is also reflected in oil prices. The price for a barrel of Brent crude oil, the international standard, rose from approximately $70 before the conflict to a peak of $119. Prices have since fluctuated. On Tuesday, Brent crude was trading near $111 per barrel. The current price remains roughly 58% higher than pre-war levels and has driven the cost of gasoline to $4.39 per gallon in many places in Western Pennsylvania.
The Associated Press reported Tuesday that U.S. consumer confidence rose modestly in April despite growing anxiety over soaring energy prices brought on by the war in Iran. The Conference Board said its consumer confidence index inched up to 92.8 in April from 92.2 in March.
Massive chunks of the economy — and the stock prices of the biggest corporations — also are getting a boost from the artificial intelligence investment boom of the past few years, Sinegal said.
“Areas of the market that were lagging have caught up,” he said. “Energy is doing well thanks to high oil prices. But with materials, the build-out of these data centers has gone from a focus on software to the physical materials needed to house these centers.”
Sinegal said almost everything else has paled in comparison to the AI boom.
“It’s driving chip stocks, construction and energy industries,” he said.
Overall, however, the stock market can be a strange beast to try and tame.
“The stock market is hard to forecast, and it’s hard to explain,” said Bryan Routledge, an associate professor of finance at Carnegie Mellon’s Tepper School of Business. “When you look at stock prices going up and down, it’s hard to put a finger on what exactly might be making that change happen.”
The stock market climb is taking place even as many U.S. households feel nervous about expensive gasoline and higher prices because of tariffs, as shown in recent Associated Press surveys. Sinegal said President Donald Trump’s rhetoric regarding the war in Iran is hurting consumer confidence but potentially boosting that of investors.
“I think to some extent it’s become a ‘boy who cried wolf’ situation,’ ” Sinegal said. “There’s been so much change with the Strait of Hormuz being closed, then somewhat open. This kind of goes all the way back to the ‘Liberation Day’ tariff announcements and what eventually happened with the courts saying most of those tariffs are not legal. People are looking through this day-to-day geopolitical volatility and saying, ‘Six months or a year from now, this situation will probably be solved.’ ”
Routledge said the stock market is, in some ways, a barometer for the economy.
“But it’s not the whole economy,” he said. “And it’s less of the economy now than it was in the past. More chunks of wealth are in things like private equity or the value or your home.”
There are also fewer companies listed on the stock market today.
“There are about 5,000 listed companies in the U.S. now, and during the dot-com boom it was more like 10,000,” Routledge said. “The stock market is affected by expectation in a lot of ways rather than being a reflection of news that’s happening right this moment.”