S&P 500 rises 16.75% since March despite geopolitical tensions, driven by AI and low inflation expectations.

The S&P 500 index has climbed 16.75% since hitting a low on March 30, defying expectations that the Iran War and closure of the Strait of Hormuz would negatively impact stocks. Market consensus now focuses on the role of artificial intelligence (AI) in shaping economic outcomes, either positively or negatively. Historically, stocks outperform inflation mainly during periods of low and stable inflation, which reduces uncertainty and risk premiums, leading to higher asset prices. This dynamic is reflected in the inverse relationship between price/earnings ratios and inflation levels, influencing investor decisions going forward.