Global equity markets are defying the economic headwinds of the ongoing Iran war, with indices in the United States, Japan, and South Korea hitting new all-time highs. The S&P 500 climbed to 7,273, the NASDAQ-100 surpassed 28,000, and South Korea’s Kospi surged nearly 7% to a fresh record. Japan’s Nikkei 225 reached 60,909 in late April, while Taiwan’s TAIEX hit 41,575. These gains come despite severe disruptions to oil shipments through the Strait of Hormuz, which have pushed energy prices to four-year highs and threatened import-dependent Asian economies.
What’s Driving the Rally?
The primary engine behind the rally is the sustained momentum of the artificial intelligence revolution. In South Korea and Taiwan, indices are heavily weighted toward semiconductor giants like SK Hynix, Samsung, and TSMC, which together account for over 40% of their respective markets. These companies supply the critical hardware—high-bandwidth memory and advanced chips—that powers AI development, a sector whose demand appears largely insulated from the current energy crisis.
Alan McIntosh, Chief Investment Officer at Quilter Cheviot Europe, told Euronews: “The strong rise in South Korea and Taiwan, particularly, has been driven by the share prices of SK Hynix and Samsung, which together represent 44% of the South Korean market, while TSMC accounts for 45% of Taiwan's market.” This concentration means that a handful of tech firms can lift entire indices, even as the broader economy slows.
In the United States, Big Tech companies like Amazon and Alphabet have used their vast cash reserves to boost AI-related spending, helping major indices defy inflationary pressures. First-quarter earnings for S&P 500 companies beat expectations by a wide margin: forecast at 13% growth, they reported 28%, with the technology sector leading the gains. Russ Mould, investment director at AJ Bell, noted: “Research shows that the technology sector leads the way, with consensus forecasts pointing to 38% earnings growth this year and 25% in 2027, thanks to AI.”
Technical Factors and Investor Sentiment
Beyond earnings, technical market dynamics are amplifying the rally. Mould explained that algorithm-driven trading firms and hedge funds had taken short positions in mid-March, expecting a downturn from the Iran war. When markets instead rallied, they were forced to cover those positions by buying equities, creating a multi-billion-dollar short squeeze. This phenomenon has added upward pressure to already buoyant stocks.
Investors are also betting on a diplomatic resolution to the conflict. “There is still a belief in markets that the blockade of the Strait of Hormuz will end soon as it appears to be in the interests of both sides to end this quickly,” McIntosh said. Additionally, many expect central banks to intervene with rate cuts or other measures if the economic drag from higher energy costs becomes severe. Mould added: “If the going gets tough, investors are accustomed to central banks saving the day with interest rate cuts, bail-outs or unconventional monetary policy.”
In Europe, the EURO STOXX 50 and STOXX Europe 600 have not reached new highs since the war began, but both trade less than 10% below their peaks—a sign of resilience. The divergence between record equity valuations and a slowing global economy underscores a market that is looking past immediate geopolitical risks, focusing instead on AI-driven growth and the hope of a swift end to hostilities. For now, the rally holds, but it remains vulnerable to any escalation in the conflict or a sharper-than-expected slowdown in consumer spending.
