The S&P 500 Just Erased Six Weeks of War Losses — Should You Trust It?

The index closed Monday above its pre-war level for the first time since Feb. 28. Earnings season opened with record profits at Goldman Sachs and a beat at BlackRock. But the ceasefire is cracking, the U.S. just blockaded the Strait of Hormuz, and inflation printed above 3%. The market is telling one story. The world is telling another.

Six weeks ago the S&P 500 was hitting all-time highs. Then a war broke out, oil surged 50%, the Strait of Hormuz closed, inflation spiked to 3%, and the index fell 7% in four weeks. That was supposed to be the beginning of something worse.

Instead, the market just erased all of it. Monday’s close put the S&P above 6,886 — higher than where it stood the day before the first strikes on Feb. 28. Bloomberg called it a milestone. Most investors are calling it disbelief.

What’s driving the recovery: Two things. First, the ceasefire — fragile as it is — opened a door. Markets don’t need certainty. They need the possibility of resolution. The fact that proposals are being exchanged, that Pakistan is brokering a second round, that Trump said Monday Iran “called to work out a deal” — all of it shifts the probability distribution just enough for capital to move back in.

Second, earnings. Goldman Sachs posted its second-highest quarterly profit in history on Monday. Revenue up 14%. Record equities trading at $5.33 billion. BlackRock reported this morning: revenue $6.7 billion, EPS beat by a dollar, net income up 46%. One number buried in their supplement stood out: performance fees surged 353% year-over-year. Volatility wasn’t a headwind for them — it was a revenue source. After the results, BlackRock raised its outlook for U.S. equities, calling the macro impact of the war “contained.” The world’s largest asset manager is betting the market is right to look past the crisis.

But the details tell a more complicated story. Goldman’s stock fell 3% despite the profit beat because fixed income revenue missed by $850 million. BlackRock’s AUM shrank from $14.04 trillion to $13.89 trillion — they made more money managing fewer assets. The 353% performance fee jump tells you where the earnings came from: market volatility, not organic growth. Both results are strong on the surface and uneven underneath. That mirrors the broader market: headline index back to pre-war levels, but only 28% of S&P 500 stocks traded above their 50-day moving average heading into this week. The rally is narrow.

The risks the market is choosing to ignore: The U.S. just blockaded the Strait of Hormuz after peace talks collapsed in Islamabad over the weekend. Iran threatened that no Gulf ports will be safe if the blockade continues. Oil jumped 8% Sunday night before easing Monday on deal optimism. Last Friday’s CPI printed headline inflation at 3% and above — the sharpest spike since 2022 — and the Fed has no room to cut. Larry Fink himself warned weeks ago that even with a ceasefire, oil could stay above $100 for years if Iran remains a threat to Hormuz. That’s not a temporary shock. That’s a structural change in energy costs.

My honest read: The market is probably right that the worst is behind us on the war — the trajectory, messy as it is, points toward eventual resolution. But it’s probably wrong to assume the economic damage reverses at the same speed. Inflation is stickier than oil prices. The Fed stays frozen. Consumers are still paying $4 at the pump. Earnings may hold up this quarter, but the guidance for Q2 and Q3 is where the real test arrives. Goldman’s CEO put it well on Monday: “Things rarely move in a straight line.”

This week delivers five more major bank earnings — JPMorgan, Citi, BofA, Wells Fargo, Morgan Stanley. Each one will show how the war, the oil shock, and the inflation spike are flowing through the financial system. The S&P erased its war losses. Whether it keeps them erased depends on what these reports say about the next six months, not the last six weeks.