Wall Street wrapped up the past week on a strong note. The S&P 500 rose to 7,126.07, while the Nasdaq climbed to 26,684, both hitting record highs for the third straight day. The Dow joined the rally, closing at 49,470.

The spark behind the move was a single social media post out of Tehran, which helped ease tensions and lift investor sentiment.

The Hormuz Effect: One Tweet That Moved Markets

Iran’s Foreign Minister Seyed Abbas Araghchi declared the Strait of Hormuz “completely open” to commercial traffic during the ceasefire between Israel and Lebanon, and stocks rocketed higher on the news.

Crude oil futures plunged over 11% after Iran announced the reopening of the Strait of Hormuz, through which one-fifth of global oil flows daily on a normal basis. West Texas Intermediate sharply retreated to $82.59 per barrel.

For investors, that collapse in oil prices is enormously consequential. It directly lowers input costs for virtually every sector in the S&P 500, eases inflationary pressure on consumers, and gives the Federal Reserve critical breathing room on interest rates.

Why the Market Is Soaring: Three Factors Investors Can’t Ignore

Geopolitical De-escalation

The stock market is forward-looking: investors are betting on a quick resolution to the conflict, largely because they’ve been conditioned to believe that President Trump will back off if the economic pain becomes too intense.

There’s an assumption that the worst of the oil disruption is in the past and the conflict will remain contained, helping lessen the global economic fallout and leaving central banks better equipped to cushion any damage.

The AI Supercycle

Investors’ enthusiasm for artificial intelligence and technology stocks, which account for almost half of the S&P 500’s market capitalization, has provided a powerful independent tailwind.

 “Those stocks run on their own dynamic independent of anything, including the war in Iran,” said Mark Zandi, chief economist at Moody’s.

BNP Paribas economists wrote in a client note this week that U.S. GDP could grow by more than 6% by 2034 on the back of large-scale AI-driven growth, noting the U.S. is best positioned globally to capture those benefits.

Earnings Season Momentum

About 10% of S&P 500 companies have reported earnings so far, and 88% have delivered positive surprises on earnings per share. Corporate America continues to broadly deliver robust revenue. Analysts had been projecting the S&P 500 to collectively grow earnings by more than 16% year over year heading into the first quarter, a four-year high.

The Bear Case Investors Can’t Ignore

Despite the euphoria, critical risks remain, and prudent investors should price them in.

The Strait remains fragile

While Iran’s foreign minister said the Strait was “completely open,” President Trump said he was continuing the U.S. naval blockade until a peace agreement is reached, applying to Iranian ships specifically. 

In response to that, the Iranian government declared the Strait closed once again. This could reverse things quickly. 

The macro backdrop is deteriorating 

The IMF cut its 2026 global growth forecast to 3.1% from 3.3%, citing energy price spikes and supply disruptions. Headline inflation is now projected at 4.4% for the year.

When global growth slows and inflation stays elevated, it puts Wall Street in a difficult spot.

Slower growth means companies may struggle to expand earnings, while higher inflation keeps pressure on costs and consumer spending. That combination can compress margins and, over time, weigh on stock valuations.

Rate cuts remain elusive

Earlier, investors were hoping for two cuts this year, but those expectations have faded as the Federal Reserve is no longer expected to lower interest rates anytime soon.

This is because of inflation risks, especially from the Hormuz blockade, which could push energy prices higher. Higher inflation makes it harder for the Fed to cut rates, since their priority is to keep prices under control.

Right now, investors are betting on a relatively high interest rate by the end of the year.

It's important to note that high interest rates are generally not great for stocks. They make borrowing more expensive, reduce liquidity, and can slow down economic growth. If rates stay higher for longer, it can eventually weigh on equities. 

Therefore, the current push in stocks is ignoring these factors, which could be a sign that the market may be getting ahead of itself. 

What Investors Should Do Now

The S&P 500 gained 11% from its low on March 30, proving again that war headlines are historically a poor reason to sell equities. Investors who panic-sold during the Iran war shock missed one of the fastest recoveries in years.

At current valuations, investors will need more good news to keep the rally going. With big tech earnings right around the corner, investor attention is likely to shift to quarterly profits from the “Magnificent Seven.” If the tech titans deliver strong results, that could be the catalyst for another leg up.

The technical picture shows breadth lagging price. As of Thursday, not a single large-cap sector had made a record high in this comeback, either intraday or on a closing basis. This is a warning sign that the rally’s foundation is narrower than the headline number suggests.

The bottom line 

At 7,126, the S&P 500 is essentially pricing in a near-perfect outcome. The market is betting that tensions around the Iran conflict ease quickly, the AI-driven growth story continues to deliver, and the economy manages a soft landing without slipping into a downturn.

That scenario is possible. But it leaves very little room for things to go wrong.

Geopolitical risks are still evolving, valuations are already stretched by historical standards, and the Federal Reserve is in no hurry to cut interest rates. Those are not conditions that typically support aggressive risk-taking.

What this means is that the upside may be limited from here, while the downside could be sharper if any of these assumptions start to break. Investors chasing the rally at these levels are effectively betting that everything continues to go right.

In this kind of environment, discipline matters more than momentum. Staying selective and managing risk is likely to matter far more than simply following the market higher.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.