In the market turmoil tied to the conflict with Iran, U.S. equity benchmarks have so far fallen by less than many international counterparts, but that cushion may not hold if fighting persists. Since strikes by U.S. and Israeli forces on Iran began in late February, the S&P 500 has slid about 4%. Over the same period Europe’s STOXX 600 has lost roughly 9%, Japan’s Nikkei has fallen north of 12%, and an iShares exchange-traded fund that tracks non-U.S. equities has dropped more than 8%.
Investors and strategists attribute the relative stability of U.S. stocks to a cluster of economic and market structure factors - lower direct oil dependence, a sizable technology sector, and a stronger U.S. dollar - but they warn that these advantages do not render the market immune to a prolonged shock.
"The U.S. can potentially absorb more economic impacts than other parts of the world can absorb. So I would expect it to outperform," said Yung-Yu Ma, chief investment strategist at PNC Financial Services Group. Ma added a cautionary note, observing that outperforming to date has still meant negative returns: "outperforming so far has meant being down... So it still can be painful."
Market sentiment has proved highly sensitive to diplomatic signals. Stocks broadly recovered on a recent Monday after U.S. President Donald Trump described conversations with Iran as productive, underscoring how quickly market direction has swung in response to news from the region.
A central rationale for U.S. resilience is that other regions appear more exposed to the energy-price shock stemming from the conflict. Oil prices have surged by more than 30% since the crisis began, and economies more dependent on imported oil or on routes through the Persian Gulf are considered more vulnerable.
Monica Guerra, head of policy and geopolitical strategy for Morgan Stanley Wealth Management, highlighted structural shifts in the U.S. economy that have reduced direct oil intensity. In a report she noted that, compared to 1980, it takes about 70% less oil to produce the same amount of U.S. GDP.
On the supply side, the United States is now the world’s largest oil producer and is a net exporter. While roughly one-fifth of global seaborne oil moves through the Strait of Hormuz, where ship traffic has been disrupted, only about 4% to 8% of U.S. oil originates from that route, according to a recent report by the BlackRock Investment Institute. "At least on a supply basis, we’re more insulated than other developed countries might be," said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. "There’s a fear out there that the supply won’t be there for some of these other countries because so much of it comes out of the Persian Gulf."
Another structural advantage for U.S. equity indices is the heavy representation of technology and tech-related companies, which have generally shown less sensitivity to the energy shock. The S&P 500 technology sector has declined by less than 2% since the conflict began. Technology comprises about one-third of the S&P 500, compared with a roughly 16.5% weighting for tech in the iShares ACWX equities ETF that excludes U.S. shares - about half the representation seen in the U.S. index.
"Overall business models in tech are not going to be heavily affected by swings in the oil markets," said PNC’s Ma, explaining why the sector’s prominence may help blunt the impact of rising energy costs on the headline index.
The U.S. dollar’s recent appreciation has also been cited as a support for U.S. equities. The greenback is up about 1.5% against a basket of currencies since the crisis began. "The U.S. dollar was identified very early in this conflict as one of the hedge winners," said Nate Thooft, chief investment officer for equities and multi-asset solutions at Manulife Investment Management. Thooft said his firm reduced exposure to non-dollar-denominated equities shortly after the war began as a defensive step to guard against downside scenarios.
Some investors noted that the recent pattern represents a partial reversal of an international-stock outperformance trend that began in early 2025. "There is a lot of money that has piled into the Europe trade," Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, observed, making that positioning vulnerable to "de-risking." He added that the U.S. looks more like a safe-haven trade in the current environment, which helps explain its relative outperformance.
Market participants also caution that a short-lived conflict could quickly restore the prior leadership of non-U.S. equities. Prior to the outbreak, some strategists viewed parts of Europe as attractive based on compelling valuations and improving earnings trends. Chris Fasciano, chief market strategist at Commonwealth Financial Network, said that if a resolution is reached in the coming weeks or months he would expect to be positioned to own international equities again, as those markets could resume being a good asset class to hold.
Valuation gaps underscore the potential for a reversal. According to LSEG Datastream, Europe’s STOXX 600 trades at roughly 15 times forward 12-month earnings estimates, compared with about 21 times for the S&P 500, a disparity that could make U.S. equities more vulnerable if the conflict endures.
Longer-duration hostilities raise broader macroeconomic risks. Tim Hayes, chief global strategist at Ned Davis Research, warned that sustained conflict could increase the likelihood of global stagflation - the combination of higher inflation and slowing growth - a scenario that has historically been damaging for asset prices.
Corporate commentary has helped reinforce the sense that the U.S. economy and U.S. companies see themselves as relatively insulated from the disruption to date. A review by strategists at RBC Capital Markets found that companies have provided investors with additional reasons to view the U.S. as comparatively protected, a factor that has contributed to the resilience of U.S. equities. RBC added that businesses generally believe a shorter-duration conflict can be managed, but that many uncertainties remain if the fighting continues for an extended period.
What this means for markets
The current configuration of energy supply dynamics, sector composition and currency moves has so far allowed U.S. equities to fall less than many peers in Europe and Asia. However, strategists emphasize that this relative outperformance is conditional: it depends on the conflict remaining of limited duration and on oil and inflation pressures not cascading into a broader global economic slowdown.
Investors monitoring the situation should weigh the potential for a rapid reversion in leadership if diplomatic progress reduces war-related risk, as well as the heightened downside if the conflict becomes protracted.