Why Geopolitical Risks Are Failing to Derail the Bull Market

The S&P 500 has clawed its way to within 5% of all-time highs despite a crescendo of geopolitical fireworks in 2025—from the Israel-Iran conflict to U.S.-China tariff brinkmanship. Investors who've been conditioned to fear geopolitical chaos might ask: How is the market shrugging off these risks? The answer lies in three pillars of modern market resilience: the Fed's inflation-fighting credibility, the U.S. energy sector's dominance, and the technical proximity to major support levels that has become a self-fulfilling prophecy for bulls.

The Geopolitical Shock Test: Past vs. Present

Geopolitical events have long been a market stress test, but modern markets are proving more resistant to sustained declines. Take the Israel-Iran conflict:

• In June 2025, tensions spiked as Israel struck Iranian nuclear sites, sending oil prices soaring 12% in 48 hours. Yet the S&P 500 only dipped 1.1% before rebounding—mirroring historical patterns.
• The 2023 Israel-Hamas war saw a 4.5% S&P decline, but the index erased losses within 19 days and gained 10% three months later.

The Fed's Rate Cut Backstop

Behind this resilience is the Federal Reserve's role as a “market insurance policy.” Even as inflation remains stubbornly above 3%, the Fed's pivot to data-dependent rate cuts has created a floor for equity valuations.

• July Rate Cut Odds: Fed funds futures now price in a 75% probability of a 25bp cut by July, with 50bp easing by year-end.
• Historical Context: The Fed's 2023 pivot after the Hamas war halted the S&P's slide and launched a 24% rally through 2024.

The market's forward-looking nature means geopolitical risks are priced in quickly. For example, the June 2025 Iran-Israel tension saw a 1% S&P drop on the news, but buyers returned as traders discounted the Fed's ability to offset economic fallout.

Why Energy and Tech Are the New "Safe Havens"

The U.S. energy sector's independence has reshaped geopolitical risk dynamics. Unlike the 1970s oil crisis, today's energy markets are buffered by:

• Domestic shale production accounting for 20% of global supply.
• A 25% rise in U.S. oil exports to Israel and allies since 2023.

Meanwhile, tech stocks—once seen as inflation-sensitive—have become the new “defensive plays” due to their cash hoards and AI-driven growth narratives. Apple and Microsoft, for instance, have outperformed the S&P 500 by 18% year-to-date despite macro noise.

The Technical Case for Bulls

The S&P 500's proximity to its 2023 all-time high (5,362) creates a powerful gravitational pull for momentum players. Key technical levels:

• Resistance: The 5,300–5,362 zone (prior highs).
• Support: The 5,050–5,150 range, which has held in every 2024–2025 dip.

Risks to the Bull Narrative

While the market's resilience is undeniable, two variables could disrupt the cycle:

1. Oil Price Volatility: A sustained $100+/barrel Brent (current: $85) would reignite inflation fears and pressure Fed patience.
2. Inflation Surprise: A CPI print above 3.5% in July could force the Fed to delay its rate cut timeline.

Investment Strategy: Stay Aligned, Stay Vigilant

The data and history argue for maintaining exposure to the S&P 500, with three actionable steps:

1. Rotate into Energy and Tech Leaders: Exxon Mobil (XOM) and Chevron (CVX) offer leverage to oil prices, while NVIDIA (NVDA) and Microsoft (MSFT) benefit from AI-driven enterprise spend.
2. Hedge with Volatility: Use S&P 500 put options (e.g., SPX Sept 5,200 puts) to protect gains without exiting the market.
3. Monitor Inflation Data: A July CPI below 3.4% would solidify Fed easing odds, while a print above 3.6% demands caution.

Conclusion: Bulls Still Rule, but the Fed Is the Kingmaker

Geopolitical risks will continue to spook traders in real time, but the market's memory is short—and its focus is on the Fed's next move. With the S&P 500 within striking distance of its all-time high and the Fed's easing bias intact, the path of least resistance remains upward. Stay invested, but keep one eye on the oil gauge and inflation reports.

The bull market isn't ignoring geopolitics—it's pricing it in, then moving on. For now, that's the game plan.