NextFin News - The S&P 500 has climbed back to within 1.5% of its January record high, a move that defies the traditional market playbook for a period of Middle Eastern conflict. While the U.S. and Israel’s military engagement with Iran since late February has sent oil prices surging due to disruptions in the Strait of Hormuz, equity investors have largely looked past the geopolitical firestorm. The resilience of the broader market suggests that the "war discount" is being offset by a more powerful force: the stabilization of the bond market.
Jim Cramer, the host of CNBC’s "Mad Money," argued on Monday that the primary reason for this rally is the recent rollover in interest rates. According to Cramer, the 10-year Treasury yield, which peaked on March 27 following the initial shock of the conflict, has since retreated. This decline in yields has provided a valuation cushion for stocks, allowing investors to justify higher price-to-earnings multiples despite the headline risks of war. Cramer noted that if interest rates were still spiking, the market narrative would be "very different," and the bulls would likely have been "slaughtered."
Cramer’s perspective is rooted in his long-standing role as a market commentator who often prioritizes liquidity and Federal Reserve policy over geopolitical macro-shocks. Known for his high-energy, often pro-equities stance, Cramer has frequently argued that "don't fight the Fed" is the most important rule in investing. His current optimism rests on the belief that the central bank, soon to be led by U.S. President Trump’s nominee Kevin Warsh, will view energy-driven inflation as a "one-off" event rather than a reason to keep rates restrictive.
However, this view is not a consensus on Wall Street. While the S&P 500 gained 1.02% on Monday, some institutional analysts remain wary of the "Warsh pivot" narrative. Data from January showed core PCE inflation remained more than a percentage point above the Fed's 2% target, and the economy grew at a sluggish 0.7% annual pace at the end of last year. Critics argue that if oil prices remain elevated, the Fed may find it difficult to "asterisk" away inflation, potentially forcing a choice between supporting growth and containing prices—a dilemma that could eventually send yields back up.
Cramer maintains that the U.S. economy is better positioned to handle this energy shock than in the 1970s, citing increased fuel efficiency and the domestic abundance of natural gas. He described natural gas as the "secret weapon" that keeps the American industrial base competitive even as global oil markets fracture. In his view, as long as the 10-year yield remains below its March highs, the path of least resistance for stocks remains upward.
The sustainability of this rally now hinges on the Senate confirmation of Kevin Warsh and the subsequent policy shift. If the new Fed leadership aggressively pursues rate cuts despite the war-induced energy spike, Cramer’s thesis of "rates over rockets" will likely hold. But if the inflationary pressure from the Strait of Hormuz proves more persistent than a "one-off" increase, the bond market’s recent calm may prove to be a temporary reprieve rather than a permanent shift in the investment landscape.
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