The Market That
Didn't Get the Memo

When oil spikes and wars break out, markets usually panic together. Oil is up 67%. Rates are rising. The dollar is surging. US stocks are down just 2%. One of these things is not like the others.

Imagine your electricity bill doubles overnight. Your grocery costs surge. Your bank tells you it can't lower your mortgage rate because inflation is running too hot. And yet somehow, your financial advisor calls you up and says: "Great news — your investments are basically unchanged. Things are looking up."

You'd probably think something was off.

That's exactly what's happening in global financial markets right now.

A war, an oil spike, and a very old playbook

When Iran and the US came into open conflict earlier this year, oil markets responded immediately. Crude oil — the lifeblood of the global economy — shot up from $60 a barrel to $100. That's a 67% increase in a matter of weeks.

This kind of move has a well-understood chain of consequences. Higher oil means higher costs for businesses and households. Higher costs mean higher inflation. Higher inflation means central banks like the US Federal Reserve can't ride to the rescue by cutting interest rates — because cutting rates when prices are already surging would be like pouring fuel on a fire.

The result is what economists call a stagflationary squeeze: the economy slows down at exactly the moment when the tools normally used to cushion a slowdown are taken off the table. It's one of the nastiest environments markets can face.

Four markets that read the room

Here's the thing: most markets understood this immediately and adjusted accordingly.

Oil itself rocketed higher — obvious enough. But look at what else moved. Interest rates on short-term government bonds surged, because traders abandoned all hope of rate cuts this year. The US dollar strengthened, as it tends to do when global uncertainty rises and capital rushes toward safety. And longer-term borrowing costs crept up too, reflecting the reality that inflation isn't going away anytime soon.

Every one of these moves tells the same story: this oil shock is real, it will hurt growth, and there's no easy escape hatch. Four different markets, four different asset classes, all reading from the same script.

And then there's the stock market

The US stock market is down about 2%. That's it. Two percent.

To put that in perspective: oil is up 67%, borrowing costs have risen sharply, the dollar is making US company profits smaller when converted back from overseas, and the overall backdrop for corporate earnings has deteriorated significantly. In past oil shocks — 1973, 1979, 1990, 2008 — equity markets fell sharply and quickly. A 10–15% decline in this kind of environment would be entirely normal.

And yet the S&P 500 is sitting there, barely moved, as if none of this is happening.

It gets stranger. Stocks have actually risen relative to long-term government bonds since the war began. In the language of markets, that means equities are quietly signalling that they expect the US economy to grow faster than before the conflict started. Not slower. Faster.

Why the gap between stocks and everything else matters

Think of financial markets like a panel of judges scoring the same performance. Oil, rates, the dollar, and bonds are all holding up cards that say: "This is bad. Growth is slowing. Pain is coming."

Stocks are holding up a card that says: "Actually, we're fine."

When judges wildly disagree like this, someone is wrong. And historically, when stocks are the odd one out — when they're the only asset ignoring bad news that everything else has already priced in — they tend to be the ones that eventually catch up. Downward.

So what could explain stocks holding up?

There are a few possibilities, none of them particularly reassuring.

The first is that traders believe the war will end quickly. If oil snaps back to $60 in a month, none of the damage sticks. Equities could be pricing in a swift de-escalation rather than a prolonged conflict. It's a bet, not a forecast — and it's a bold one given that oil futures markets, which price contracts months into the future, are still sitting well above pre-war levels.

The second possibility is that something else is expected to offset the damage. Perhaps a surge in US government spending, or a belief that AI-driven productivity gains will cushion the blow. These aren't crazy ideas, but they're speculative — and they'd have to be very large to counteract a sustained $100 oil price.

The third, and least comforting, explanation is that stock markets are simply lagging. They haven't caught up yet. The bad news is real, it's already embedded in bonds and rates and the dollar, and equities will eventually reprice to reflect it.

What this means for you

If you own US stocks — through a pension, a unit trust, an investment account — the current calm may be misleading. The other markets are telling a story about slower growth and higher costs that stocks haven't yet told.

That doesn't mean a crash is inevitable. Markets can stay disconnected for longer than seems rational. A ceasefire tomorrow would change everything. But it does mean this is not a moment to be complacent.

The playbook for oil shocks is well-worn and consistent across history. Growth slows. Inflation rises. Central banks are stuck. Asset prices fall. Four out of five major markets are already following that playbook.

The one holdout is the one most people watch most closely.

Analysis based on Bob Elliott, Unlimited Funds, March 18 2026. Cross-asset data is illustrative, indexed to 100 at January 1 2026. This article represents the author's personal analysis and is not financial advice.