Financial markets are showing mixed signals as the Middle East conflict approaches its eighth week, with stark differences emerging across various investment sectors.
American equities have made a complete recovery from war-related losses, with the S&P 500 benchmark climbing 10% since hitting bottom on March 30. The index closed Tuesday at 6,967.38, surpassing its February 27 level from before U.S. and Israeli airstrikes began in Iran.
The market’s fear indicator, known as the VIX volatility index, has dropped back under 20 after reaching a 10-month peak above 35 last month. This dramatic turnaround follows last week’s ceasefire agreement and growing optimism about renewed peace negotiations.
Major investment firms Citi and others have adopted positive outlooks for American stocks, citing expectations for strong corporate profits, especially in technology sectors. March represented the index’s steepest monthly decline since the tariff-related turbulence of April 2025.
However, energy markets tell a different story. Crude oil continues trading near $100 per barrel, representing a 40% increase from late February prices. North Sea crude for immediate delivery has refiners paying over $140 per barrel – nearly double pre-conflict rates.
“The U.S. can manage an oil shock of this duration, though Asia is more exposed,” explained Markus Hansen, a portfolio manager at Vontobel, who has been purchasing discounted stocks during the selloff. Hansen warned that sustained high energy costs will likely delay central bank interest rate reductions.
Bond markets reflect this energy price pressure, with borrowing costs across the United States, Europe, and Japan trading well above pre-war levels. Persistent high energy expenses are stoking inflation concerns and making central banks more cautious about monetary policy.
U.S. two-year Treasury yields sit roughly 40 basis points higher than late February at approximately 3.75%, while British two-year yields have jumped 75 basis points. Gold has also struggled, remaining nearly 10% below pre-conflict levels as investors sold their best-performing assets to offset losses elsewhere.
Currency markets have largely stabilized, with the dollar returning to pre-war positions. The dollar index, measuring the greenback against six other currencies, now trades just above its February 27 closing level. The euro has recovered to around $1.18, and the British pound has returned to pre-conflict levels at $1.136.
Regional disparities are pronounced among different economies. Europe’s energy dependence has left the STOXX 600 down 2% from pre-war levels, while Germany’s industrial-focused DAX has dropped nearly 5%. Asian markets in Japan and Korea also show significant declines.
The Philippines has declared a national emergency due to energy import challenges, with its stock market falling 8% since the conflict began. Conversely, oil-exporting Brazil has seen its main equity index rise 5% above pre-war levels, with the real currency gaining 2.7% against the dollar.
Norway’s crown has strengthened more than 1% versus the dollar since hostilities commenced. China, despite being a major oil importer, has benefited from substantial reserves and low domestic inflation, leading to bond market inflows and declining yields. Chinese green energy stocks have experienced particularly strong gains.
The divergent market performance reflects the complex economic impacts of the ongoing conflict, with energy-dependent economies facing continued challenges while oil exporters and markets with strong fundamentals show resilience.
