Global Stocks Recover Losses from Iran Conflict and Reach New Highs

Global stocks have recovered losses incurred after the start of the Iran conflict, with major indexes now at or above pre-conflict levels. The MSCI World Index fell 3.29% in the week immediately following the conflict's outbreak on March 2. In recent days, the index has reached a new record high and is nearly 2% above its March 2 level.

Leung, investment strategist at Global X ETFs, stated that the rebound resulted from a rapid unwind of the war-risk premium in equities, oil, and the dollar. He added that defensive positioning reversed quickly once ceasefire prospects emerged. Zavier Wong, market analyst at eToro, said investors judged the conflict would remain contained, leading to a view that the initial selloff was an overreaction.

He noted that hedge fund short-covering amplified the rally after the ceasefire announcement.

The recovery has faced some setbacks, with markets giving back gains as peace talks show strain, according to Wong. U.S. President Donald Trump stated on Monday that Iran faces overwhelming military force if no deal is reached before the ceasefire expires this week.

Beyond positioning, macroeconomic indicators such as labor market data have shown little deterioration, and expectations for Federal Reserve rate cuts later this year remain. Enthusiasm for artificial intelligence has also supported equity performance, particularly in technology sectors.

Ed Yardeni, veteran market strategist, stated that the market anticipates the conflict will end soon and that the world economy will remain resilient. He added that investors are focusing on technological innovations in AI, robotics, and autonomous driving.

Analysts noted divergences, with bond markets still pricing in potential economic stress, including stagflation risks from a prolonged energy shock, while equities have largely moved past such concerns.