Markets shrug off U.S.-Iran strikes as earnings season opens
The S&P/TSX Composite opened Tuesday morning up 0.4%, tracking U.S. indexes higher even as American and Iranian forces traded strikes over the weekend. The Dow gained 0.5% at the open. The Nasdaq climbed 0.6%. Oil, the asset class you'd expect to move hardest on Middle East escalation, barely budged.
This isn't denial. It's pattern recognition.
Markets have spent the past four years learning to price geopolitical flare-ups as noise rather than signal. The U.S. killed Qasem Soleimani in January 2020. Oil spiked for three days, then gave it all back. Russia invaded Ukraine in February 2022. The initial selloff lasted two weeks. Hamas attacked Israel in October 2023. The S&P 500 was positive again within a month. Each time, the initial shock faded once traders realized the event wasn't going to disrupt the actual flow of goods, credit, or earnings.
Earnings Matter More Than Strikes
What moves markets this week isn't the Strait of Hormuz. It's whether the 2025 earnings estimates that justify current S&P 500 valuations, sitting at roughly 21 times forward earnings, hold up under scrutiny. Earnings season opens this week with the big U.S. banks reporting Friday. JPMorgan, Wells Fargo, Bank of America. If net interest margins held up better than expected and loan loss provisions stayed low, that's the story equity desks will trade on. If consumer credit deterioration showed up faster than the consensus forecast, that's the story.
The U.S.-Iran exchange matters to markets only if it threatens one of two things: energy supply tight enough to spike inflation again, or a wider conflict that forces a fiscal response large enough to move Treasury yields. Neither happened. Iranian strikes targeted military infrastructure, not oil fields. U.S. retaliation was measured. Both sides signaled restraint in the language that matters to bond traders, which is the language of what they didn't hit.
That leaves the market free to focus on what it was already focused on: whether corporate America can grow earnings at 12% this year, the rate currently baked into prices. That assumption rests on consumer spending staying healthy, margins holding despite wage pressure, and the Fed cutting rates at least twice more in 2025. All three are open questions. The geopolitical backdrop is not.
What Stays Priced In
iA Financial's advisors noted publicly that markets are "downplaying" Middle East developments. That's the right word. Not ignoring, downplaying. The risk is still there. A miscalculation, an accidental hit on a tanker, a strike that kills the wrong people, and the calculation changes fast. But the base case, the scenario equity markets are pricing, is that both the U.S. and Iran have more to lose from escalation than they have to gain.
That base case has held for four years across multiple flashpoints. It held in 2020. It held in 2022. It held in 2023. It held again this week. At a certain point, the pattern becomes the model. Markets don't shrug off geopolitical risk because they're reckless. They shrug it off because they've watched it fail to matter to earnings, repeatedly, and earnings are what equity prices actually track over anything longer than a two-week window.
If JPMorgan reports Friday and net interest income disappointed, the TSX will move on that. If Iranian forces sink a tanker Thursday night, the TSX will move on that too. One of those scenarios happens every quarter. The other happens every few years and fades every time.
