Has market uncertainty officially passed? 3 factors driving the turnaround

Anthony Saglimbene, Chief Market Strategist – Ameriprise Financial

May 18, 2026

Earlier this year, investors braced for the worst, as markets slipped toward correction territory and geopolitical tensions in the Middle East threatened to disrupt global oil flows. With energy prices surging and risk appetite fading, hundreds of billions of dollars were pulled from equities. At the time, the dominant question wasn’t if the downturn would deepen, but how far it would spread.

Yet, markets have rebounded sharply from their March lows, with major indexes climbing to fresh all-time highs. Specifically, April delivered one of the strongest equity rallies since November 2020.

This rapid shift has left many wondering what changed and why investors are suddenly seeing the markets through a more optimistic lens. Here are three forces that are reshaping the investor outlook after a challenging start to the year:

1. Impressive corporate earnings

U.S. corporate earnings were exceptionally strong during the first three months of the year. The vast majority of S&P 500 companies beat Q1 profit expectations by a wide margin, forcing analysts to raise their profit outlooks for the coming quarters. In addition, profit margins have expanded to some of the highest levels on record, according to FactSet. Notably, 10 of 11 S&P 500 sectors have reported Q1 earnings growth (sans health care), a rare occurrence that reflects broad underlying strength across corporate America.

Bottom line: When earnings are growing at the rate seen in Q1 (roughly+28% year-over-year), and the profit outlook for the coming quarters is being materially reset higher, it gives investors a fundamental reason to look through near-term uncertainty, particularly when geopolitical issues are notoriously difficult to predict.

2. Rekindled enthusiasm for AI

The artificial intelligence (AI) investment cycle continues to provide a powerful structural tailwind for the market that, in hindsight, investors were too eager to discount in Q1. The largest U.S. technology companies have committed to spending at levels that were difficult to imagine a year ago. Combined capital expenditure budgets among the top hyperscalers for 2026 have reached over $700 billion, an astounding figure compared to just a year ago. Demand for AI-related chips, cloud infrastructure and data center capacity continues to accelerate. Importantly, the rally in semiconductors has broadened and is no longer a one-company story. Multiple chipmakers have reported strong demand growth, and the supply chain supporting AI buildouts is expanding rapidly.

Bottom line: AI has reasserted itself as the dominant market force again. This has allowed investors to see a clear forward-looking growth narrative for the major constituents of the S&P 500 and NASDAQ, which could extend well beyond the current quarter. Simply, AI fundamentals have proven more powerful than the fear of an uncertain Middle East, which has shifted attention back to the main driver of stocks right now. Technology profits, for example, are up an eye-popping +51% year-over-year in Q1.

3. Easing Middle East tensions

While Middle East tensions remain elevated, the temperature has come down from levels that might have caused the water to boil over at the end of March. The most extreme disruption scenarios that dominated the narrative in the first quarter have faded, at least for the moment. Of course, that doesn’t mean the risks have evaporated. It just means the market's estimate of the worst-case probability has come down, allowing stocks to move higher as tensions ease.

Overall, it’s our view that markets have grown desensitized to Iran-related geopolitical risks, at least for now. Equities have a long history of discounting geopolitical events quickly, particularly when those events do not alter the trajectory of corporate earnings or overall economic growth, which remains firm here in the U.S.

Notably, over the past several years, Middle East tensions have generated alarming headlines (which cause temporary market shocks) but have rarely produced lasting damage to the global economy. As such, each escalation in conflict has been followed by eventual de-escalation. Each shock has been absorbed. And over time, the market's willingness to price in geopolitical tail risk has diminished.

Bottom line: Markets focus on outcomes, profits and growth. At least for now, the U.S.-Iran conflict has been manageable globally with less domestic impact on the measures that stock prices move against.

Still, risks persist: Oil prices remain well above pre-conflict levels. Energy costs are pressuring consumer/producer prices, which constrain the Federal Reserve's ability to ease policy rates. The conflict has disrupted global commodity flows and stalled diplomatic progress, leaving a framework for a lasting resolution in limbo. If negotiations break down or violence again erupts in the region, we believe the market's current positioning leaves a limited cushion for disappointment.

Bottom line

From our vantage point, the current stock rally has been earned. Earnings are strong. The AI investment cycle has kicked into higher gear. And, in our view, the worst-case geopolitical outcomes have become less likely.

But the gap between equity market optimism and the more cautious signals from bond and energy markets is worth watching. It suggests that not all asset classes, or investors for that matter, share the same level of confidence in the current state of the market.

For long-term investors, we believe the environment supports staying invested and maintaining a diversified portfolio. But it also calls for a clear-eyed view of the risks that remain, even when markets appear to have moved on from the fears that gripped stocks at the March lows.

Make sense of the markets

If you have questions about how the current market and economic landscape is affecting your personal portfolio, reach out to your Ameriprise financial advisor. They can help you understand how the external environment influences your investment performance and identify potential financial strategies that align with your personal risk tolerance, time horizon and financial goals.