Stocks have surged to new highs despite the Iran war, driven by investor confidence in corporate profitability. The S&P 500 rebounded sharply after a March slump, fueled by optimism around AI-driven earnings and resilient global demand. Analysts attribute this rally to expectations that businesses will offset geopolitical risks through innovation and cost-cutting. Meanwhile, international markets, particularly in Europe and Asia, have outperformed U.S. indices year-to-date, signaling broad confidence in equities.

Bonds, however, face headwinds as rising oil prices and inflation fears push yields upward. The Bloomberg US Aggregate Index has stagnated near zero returns for the year, with long-term Treasuries like the iShares 20+ Year Treasury Bond ETF (TLT) plummeting after a February rebound. Investors fear prolonged elevated rates could erode bond valuations, even as central banks signal cautious rate-cut potential.

The divergence highlights divergent risk appetites: stocks prioritize near-term earnings, while bonds grapple with macroeconomic uncertainty. Strategists warn stagflation risks persist if oil prices remain elevated, yet equities’ “Teflon-like” resilience persists. U.S. Treasuries, despite losing AAA credit rating status in 2023, remain a relative safe haven compared to British gilts, which have surged to 5% yields.

This split reflects broader economic tensions. While corporate profits hit records, oil prices staying above $90 a barrel threaten growth. The market’s bet on U.S. economic strength endures, but analysts caution a prolonged conflict could test this optimism. For now, equities’ exuberance overshadows fixed-income caution.