The S&P 500 is back at all-time highs. The Nasdaq 100 just put together a 13-day winning streak, its longest in over a decade. The Russell 2000 is up 11% month-to-date. And the conflict in Iran remains unresolved, with a naval blockade still choking one of the world's busiest waterways.
The natural instinct is to call this irrational. But the data suggests otherwise, and the distinction matters for how you think about positioning from here.
Recoveries have been getting structurally faster
After a nearly 10% drawdown in the S&P 500, a full recovery to pre-conflict levels took only 11 trading sessions. That sounds extreme until you look at the trend. The dot-com crash took 1,166 days to recover. The GFC took 1,021. More recently: COVID took 103 days, the 2025 tariff shock took 55. The direction of travel is clear: recoveries are compressing, and this one is the fastest on record.
The reason isn't complacency. It's a combination of deeper market liquidity, evolved market structures, and investor memory. Staying invested despite geopolitical volatility has repeatedly yielded long-term gains, and investors are favouring re-engagement faster as a result.
The rebound is uneven, and that divergence is informative
Korean and Taiwanese markets reached record levels, and emerging markets rebounded at an even faster rate than US benchmarks. But Europe and Japan, despite fierce rebounds, continue to trade well below pre-conflict peaks.
Europe's explanation is straightforward. The region outperformed earlier in the year, valuations rose alongside aggressive earnings expectations, and going into the energy shock it was already quite vulnerable. The worry now isn't just relative valuations but negative earnings revisions going forward, a far less rosy picture than the US, especially given Europe's lack of technology weighting.
This is the key structural point. The US rally has a specific engine. Europe's doesn't.
Prices are back. Valuations aren't.
Here is the part of the setup that gets overlooked in the headline recovery narrative. Although the S&P 500 returned to its best levels, its valuation has fallen from peak levels. At the end of 2025, the benchmark traded above 23x on a one-year blended forward P/E basis. Today, that figure is below 21x, and the repricing is even more dramatic in the technology sector.
What that means is that the price recovery has been driven by earnings expectations rising faster than prices, not by multiple expansion. The market is re-rating upward on fundamentals, not just sentiment. That is a meaningfully different and more durable signal.
Earnings are the real story
With about 25% of the S&P 500 having reported quarterly results, roughly 83% have topped earnings estimates, well above the five-year average of 78%. Revenue growth is also on track for its strongest levels since 2022, with 77% of companies topping revenue estimates against a five-year average of 70%.
If the rest of earnings season delivers as expected, it would mark six straight quarters of double-digit earnings growth, the longest such streak since the recovery from the 2008 financial crisis.
That said, context matters. The median stock is expected to grow earnings by about 8%, only marginally higher than the 7.5% historical average. The outsized headline growth figures are being driven by technology. Strip out tech and this is a decent but not exceptional earnings cycle.
My read
The rally is not irrational, but it is concentrated. The market is being carried by a specific thesis, AI-driven tech earnings, and the geopolitical backdrop is being discounted as long as that thesis holds. That's not unreasonable given the data. But it does mean the risk is asymmetric: if Big Tech earnings disappoint next week, there is no geopolitical resolution to fall back on as a support. The two pillars holding this market up are corporate fundamentals and conflict optimism, and only one of them has been tested so far.
