A weekend deal to end the war between the United States and Iran is raising hopes that stock market gains could spread well beyond the technology sector, with consumer-focused companies and smaller businesses seen as potential winners.
Investors say economically sensitive stocks — including consumer shares, small-cap companies, and equities in regions more exposed to energy prices than the U.S. — could see a boost following the announcement. The agreement included the reopening of the Strait of Hormuz, a vital route for global oil shipments.
U.S. crude oil prices dropped to a three-month low on Monday in the wake of the deal, while the S&P 500 climbed 1.7%, landing less than 1% below its all-time record set earlier this month.
“Easing in geopolitical tensions could alleviate some of the inflation pressures and reduce bond yields,” said Angelo Kourkafas, senior global investment strategist at Edward Jones. “That can be the catalyst driving that rotation into cyclical sectors and areas that have lagged.”
Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said retail names such as Home Depot, Target, and Macy’s could benefit as falling oil prices lower gas costs for everyday shoppers. The S&P 500 consumer discretionary sector rose 1.9% in afternoon trading Monday, while the small-cap Russell 2000 index gained 0.9%.
“The end of the war could help fuel the belief that consumers will have discretionary money to spend somewhere else,” Pavlik said.
Strategists at BCA Research announced Monday they were opening a “tactical long” position in the consumer discretionary sector, citing “easing geopolitical tensions and oil-price relief.”
Many investors have been looking for relative bargains outside of tech. Since the conflict began in late February, the S&P 500 technology sector has surged 28%, compared to a 10% gain for the broader market index.
Despite that, Pavlik and other analysts cautioned that investors may be hesitant to leave tech stocks behind while they continue to perform strongly. On Monday, tech was actually the top-performing sector, climbing more than 3%.
“A sustained ceasefire between the U.S. and Iran, combined with easing oil prices, could help the rally broaden beyond AI and tech,” said Anthony Saglimbene, chief market strategist at Ameriprise, though he noted that on Monday, “investors appear most interested in bidding up established winners.”
Looking ahead, a number of market strategists are anticipating a wider expansion of stock market strength in the months to come. JPMorgan equity strategists said Monday they expect market gains to broaden in the second half of the year.
“If our positive macro view plays out — underpinned by strong earnings, stable inflation expectations, and an easing of geopolitical risks in the second half — cyclicals should remain well positioned to outperform through year-end,” JPMorgan strategists wrote in a research note.
Morgan Stanley equity strategists are forecasting “relative strength” ahead for consumer goods, transportation, and regional bank stocks, where earnings trends are on the upswing. “A broadening to under-owned cyclical groups is underway,” Morgan Stanley wrote Monday.
The resolution of the Iran conflict may also provide a bigger lift to international markets that were seen as more vulnerable to oil price spikes than the United States. “While recent shocks have reinforced U.S. resilience, the de-escalation in energy, with oil near about $80, could act as a catalyst for catch-up flows into ex-U.S. markets,” wrote Manish Kabra, equity strategist at Societe Generale.
Still, some investors say the market rally may need additional support to truly broaden out. Interest rate expectations have shifted dramatically — markets that started the year expecting rate cuts are now pricing in a potential rate hike, after energy-driven inflation climbed. The Federal Reserve is expected to keep rates unchanged at its meeting this week.
“When you think about whether the rest of the market will outperform the AI story, I think for that, you may have to see rate cuts being priced in,” said Sonu Varghese, global macro strategist at Carson Group.
Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management, said tech stocks may need to stumble before other sectors can take the lead. “Where you’re going to get a boost in the rest of the market is from a stumble in the tech sector, in the AI trade,” Nolte said. “Tech has really just kind of sucked all the oxygen out of the room to this point to where it’s difficult for any other part of the market to do well.”
