Many investors appear to believe that if the United States and Iran can resolve their differences, the S&P 500 will have a clear path toward the 8,000-point level. However, a more important question is whether the index’s direction is really being determined by geopolitical developments in the Middle East, or by the fate of the AI-driven market boom. Ultimately, the single most important factor influencing the S&P 500 remains whether the AI bubble will continue to expand or begin to unravel.
Admittedly, the S&P 500 seemed to react to developments in the US-Iran conflict, from the outbreak of hostilities through the ceasefire announced in early April. However, it is worth asking whether the market has misread the underlying fundamentals. Even after the ceasefire, shipping traffic through the Strait of Hormuz remained well below pre-war levels. More recently, despite the signing of a memorandum of understanding between Washington and Tehran, total shipping volume through the Strait over the past two weeks has still been less than 20 percent of its pre-conflict level. This suggests that disruptions to global crude oil supplies have by no means been fully resolved.
Against this backdrop, the S&P 500’s sharp rebound from early April and its subsequent record high of 7,620 on June 2 were unlikely to have been driven by expectations of easing energy shortages or lower inflation resulting from improved US-Iran relations. Rather, the rally was primarily fueled by persistent enthusiasm surrounding artificial intelligence, with investors aggressively chasing memory-related semiconductor stocks and other AI beneficiaries.
At the same time, investors should consider why the S&P 500 failed to extend its gains after the MoU was signed. Instead of breaking to fresh highs, the index began to lose upward momentum. This itself suggests that developments between the United States and Iran were not the primary driver of market performance. Following the June 2 peak, investor attention shifted toward concerns that memory-related stocks had become excessively overvalued, while a series of warning signs began to emerge across the broader AI sector.
For example, Oracle cautioned in its annual report that failure by major customers to fulfil contractual commitments could place pressure on its financial performance. Meta also indicated that it intended to generate additional revenue by selling excess AI computing capacity, raising questions about the balance between AI infrastructure supply and demand, as well as intensifying competitive pressures within the sector. Meanwhile, reports that OpenAI may postpone its initial public offering until next year further dampened investor sentiment. Collectively, these developments weighed on AI-related stocks and prevented the S&P 500 from establishing another decisive breakout.
Therefore, while it would be premature to be overly optimistic about the prospects for a comprehensive US-Iran agreement, investors should recognize that the decisive factor for the S&P 500 is unlikely to be geopolitical negotiations alone. Far more important is whether the AI-driven market boom can be sustained – or whether the AI bubble ultimately begins to burst.
Andrew Wong is a veteran independent commentator.
