Why stocks keep climbing through war, tariffs and inflation

US stocks have kept pressing toward record highs in 2026 even as investors absorbed tariff threats, Middle East conflict and stubborn price pressures. The market is being pulled by a narrower set of facts than the headlines suggest. As of April 20, the S&P 500 had delivered a total return of more than 25 per cent since the 2024 election, according to U.S. Bank. That run looks jarring next to war risk and household strain. In the arithmetic that actually moves prices, strong corporate profits, heavy artificial intelligence spending and confidence that growth can keep running have outweighed the shocks that dominate the political conversation.

National mood does not register in an equity index. Neither does the cost of a weekly grocery run. Indices discount future earnings, interest rates and the share of those earnings captured by the companies with the biggest weights. A rally can survive an ugly news cycle because investors are pricing a smaller, more optimistic story than the economy around them: megacap companies keep posting profits, analysts have held their earnings forecasts, and the macro damage from tariffs or oil has not yet become large enough to force a broad repricing of equities.

Profit growth staying better than feared is one reason the rally has held. U.S. Bank Asset Management Group cited 13.4 per cent earnings growth for the S&P 500 in the fourth quarter of 2025, a figure that matters more for index direction than any single day’s political noise. Bill Merz, the firm’s head of capital markets research, said investors had “overcome concerns about geopolitical conflict and trade announcements and focused on fundamental strength, namely corporate earnings growth.” So long as listed companies keep reporting resilient sales, defend margins and avoid a collapse in guidance, the market has a reason to keep moving higher even when the macro backdrop looks frayed.

The other crucial detail is concentration. The rally has not needed every company to flourish at the same time. CNBC reported that the 10 largest companies accounted for 34 per cent of total S&P 500 profits, which helps explain why the broad index can stay firm when many smaller businesses or households feel less secure. A market dominated by a few giant balance sheets behaves differently from a market in which leadership is evenly spread. If the largest technology and platform groups continue to turn AI capital spending into revenue growth, the index can mask a lot of weakness underneath. The rally is not fake. It is narrow.

Why bad news has not broken it

Geopolitics and tariffs hurt equities only when they damage the earnings path or alter the trajectory of interest rates. That threshold has not been crossed decisively. J.P. Morgan framed the puzzle directly: why were stocks at record highs without an Iran resolution? Its answer was that markets still saw enough economic and profit resilience to absorb the uncertainty. Investors have not ignored war or trade friction. They have treated them as risks to monitor rather than confirmed breaks in the cycle. Markets move first on whether an event changes cash-flow expectations, then second on the event itself.

Tariff headlines have not produced a lasting downtrend for the same reason. Tariffs can raise input costs, squeeze margins and complicate supply chains, but the market only reprices hard when those pressures show up broadly in earnings reports or force the Federal Reserve into a more restrictive stance. So far, the evidence has been mixed rather than catastrophic. Reuters, via Yahoo Finance reported that 83 per cent of reporting S&P 500 companies had beaten earnings estimates — an unusually strong beat rate for a market that was supposed to be buckling under macro stress. A beat cycle of that strength gives investors cover to keep paying elevated multiples, even if they do so more nervously than the index level implies.

Oil and inflation are the cleaner threats, because they can work through both profits and interest rates. The Dallas Fed estimated that an Iran-related oil shock could add 0.6 percentage points to 2026 headline PCE inflation and 0.2 percentage points to core PCE inflation. That is meaningful. It is also not automatically fatal to equities. A higher oil price hurts more when it arrives alongside collapsing demand or a sharp upward repricing in real yields. If investors believe the inflation impulse is temporary, or that the earnings power of the largest companies can outrun it, equities can continue to trade through the shock. The market is not saying inflation is good news. It is saying the current inflation risk has not yet been large enough to overturn the profit story.

Why the market looks stronger than the mood

Listed companies at the top of the index enjoy scale, pricing power, global revenue streams and access to cheap capital. Consumers and small businesses get none of those buffers. That gap can make a rally look perverse from the outside, especially when grocery bills, loan payments or tariff-sensitive prices still feel elevated. But the index does not need the median household to feel prosperous every week. It needs the companies that dominate benchmark earnings to keep delivering results that justify current valuations. The two things can diverge for longer than critics expect.

Fidelity has made a similar argument from the macro side: the fundamentals still support expansion even as the cycle becomes more uneven. Jake Weinstein, a senior vice president at Fidelity’s Asset Allocation Research Team, said “the fundamentals remain robust and support continued expansion.” It is a restrained way of saying the economy has slowed without clearly breaking. For equities, that is enough. A soft patch, a noisy geopolitical backdrop and sticky prices are uncomfortable conditions. They are not automatically recession conditions, and markets are still trading the distinction.

Valuation anxiety follows the same logic. High multiples can persist when investors believe the earnings base underneath them is durable. Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group, said “sustained earnings growth is crucial for supporting these valuations.” That is the real fault line for the second half of 2026. If AI spending stops converting into revenue, if tariff costs begin to show up more plainly in margins, or if an oil shock keeps inflation high enough to reprice the rate path, the market’s tolerance for expensive stocks will narrow quickly. Until one of those breaks arrives in the data, the path of least resistance can still be higher.

The market’s answer is narrower than the question. Why do stocks keep going up when the world looks disorderly? Because the market is not trying to resolve every geopolitical and economic contradiction at once. It is continuously asking a smaller set of questions: are the biggest companies still earning, are estimates still holding, and have rates moved enough to crush those earnings? In 2026 the answer has, so far, remained supportive. That can change. It just has not changed yet.