Stock market optimism is baffling some on Wall Street

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Stocks' march higher in the face of deepening geopolitical uncertainty is leaving some on Wall Street increasingly perplexed. U.S. equities continued to show resilience on Monday even after President Donald Trump announced a blockade of the Strait of Hormuz , with peace talks between the U.S. and Iran over the weekend ending without a deal. Many said there's a disconnect that reflects investors' growing willingness to look through near-term risks and a fear of missing out on any eventual rebound. "The rally last week shows investors don't want to miss the upside for when the conflict ends," Piper Sandler strategists wrote in a note. "The equity market has now priced in a quick return to normal. But this conflict is not over and there is a good chance it could go on a lot longer." The analysts warned that the current standoff lacks an "obvious face-saving offramp," raising the risk that hostilities could drag on rather than resolve in a matter of weeks, which has been a dynamic more consistent with past conflicts. The blockade of all maritime traffic in and out of Iran's ports went into effect Monday. U.S. Central Command said the U.S. will not block vessels using the strait to get to non-Iranian ports. Still, the S & P 500 traded flat on Monday after rallying 3.6% last week. .SPX 1M mountain S & P 500 one month Investors appear to have grown accustomed to sharp escalations tied to Trump's policy battles that ultimately gave way to some form of negotiation or de-escalation . As a result, the stock market continues to price in a relatively benign outcome, even as some analysts argue that underlying conditions point to a more prolonged disruption. Melius Research struck a more cautious tone, pointing to decades of failed diplomacy between the U.S. and Iran as a reason to doubt any swift breakthrough. "We do not anticipate the current ceasefire to hold," the firm wrote. "The failed talks in Islamabad only reinforce our expectation of a longer conflict, further reduced global oil and natural gas (LNG) inventories, and higher 'new normal' prices." Others say the next major test for that optimism may come from corporate America itself. "The big question for stocks going forward is if this upcoming earnings season can be enough of a catalyst to dismantle the close link between stocks and oil, as corporate earnings are what traditionally drive stock prices," said Clark Bellin, president and chief investment officer at Bellwether Wealth.