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Markets Build on Records as Iran Talks and Earnings Season Converge

Two powerful forces are pushing U.S. equities higher this week, and for once they're working in tandem. Diplomatic momentum in the U.S.-Iran conflict, combined with one of the strongest earnings seasons in years, has carried all three major indices to or near record territory.…

Market MunchiesΒ·May 7, 2026Β·12 min read
May 7 hero

Two powerful forces are pushing U.S. equities higher this week, and for once they're working in tandem. Diplomatic momentum in the U.S.-Iran conflict, combined with one of the strongest earnings seasons in years, has carried all three major indices to or near record territory. The S&P 500 and Nasdaq built on record highs Wednesday and are extending those gains into Thursday's session, while the Dow Jones Industrial Average has exited correction territory. Oil prices, a key barometer of geopolitical tension, have fallen sharply over the past two sessions as markets price in a reduction in Middle East hostilities.

What makes this moment notable isn't just the direction of markets, but the breadth of the move. Investors who spent the past year sorting winners from losers by AI exposure are now confronting a different story: the rally has legs that extend well beyond technology. Energy, industrials, consumer staples, healthcare β€” all are contributing to a profit cycle that's running at its strongest pace since late 2021.

That said, both catalysts carry real uncertainty beneath their encouraging surfaces. Iran has received the U.S. response to its latest peace proposal, but significant sticking points remain, and Trump has signaled he may reject Tehran's terms as insufficient. Meanwhile, a strong earnings season is welcome, but markets are already pricing in continued growth at a premium valuation, leaving little room for disappointment. Here's what investors need to understand about where things stand right now.

Stock of Interest Today: Kohl's (KSS)

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Kohl's is an unusual story at an unusual moment. The struggling department store chain β€” down sharply from its 52-week high and navigating a prolonged turnaround amid declining same-store sales β€” is suddenly sitting on a meaningful near-term windfall.

The company's expected to receive approximately $550 million in refunds on tariffs it previously paid, a consequence of the Supreme Court's February ruling that the Trump administration lacked statutory authority to impose those tariffs. After taxes, that figure translates to roughly $430 million. Combined with existing cash generation, Kohl's net cash position could rise by more than $800 million in 2026.

That's a significant number relative to where the stock is trading. It doesn't, however, resolve the underlying challenges. Kohl's 2026 guidance calls for net sales ranging from down 2% to flat, and the ongoing Middle East conflict is expected to push results toward the lower end of that range. The company has said it can still generate roughly $400 million in free cash flow after dividends even at that low end.

Kohl's also isn't alone here. Citi estimates that Walmart could receive more than $10 billion in tariff refunds, with Target due over $2 billion and Gap slated for around $400 million. More than 330,000 importers paid duties eligible for refunds, making this a sector-wide event rather than a Kohl's-specific story. Management teams across retail have largely said they'll weigh all options β€” share buybacks, debt paydown, or simply padding the balance sheet β€” without committing to specifics.

For Kohl's, the refund buys time and flexibility. Whether the company uses that time to rebuild its competitive position in a shifting retail landscape is the central question.

Current Price:Β $14.42 Analyst Target: $15.20

Five Market Signals Worth Watching

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The following five signals are shaping how professional investors are reading this market right now. Taken together, they tell a story that's more nuanced than the headlines suggest: real fundamental strength operating alongside real geopolitical risk, with markets currently choosing to emphasize the former while underpricing the latter.

Understanding the difference between what's confirmed and what's merely anticipated is the most important analytical task of this moment. Two of these signals are unambiguously positive. Two are cautionary. One sits squarely in between β€” depending almost entirely on whether words become action in the days ahead.

1) Trump's "Very Good Talks" Comment and What It Does and Doesn't Mean

President Trump told reporters Wednesday that U.S.-Iran talks over the past 48 hours had been "very good," adding that a deal was possible and could happen quickly. That was enough to send oil prices sharply lower and lift equity markets, with Brent crude extending a multi-session decline and the S&P 500 notching another record.

Behind the optimism sits a specific diplomatic framework: a 14-point memorandum of understanding being negotiated by Trump's envoys Steve Witkoff and Jared Kushner, both directly with Iranian officials and through Pakistani mediators. In its current form, the memo would formally end active hostilities and open a 30-day window for deeper negotiations on the Strait of Hormuz, Iran's nuclear program, and U.S. sanctions.

But the gap between the president's tone and the actual state of play is significant. Trump has also said a face-to-face meeting is "too soon," and that if Iran doesn't comply, military action would resume at a "much higher level." Iran has characterized parts of the U.S. proposal as an "American wish-list." Tehran's own counter-proposal includes demands for a U.S. military withdrawal from the region, sanctions relief, and asset releases β€” terms Washington has reportedly viewed as unacceptable at this stage.

Even if a memo is eventually signed, it'd represent the beginning of a negotiation, not a resolution. For investors, the practical message is simple: directional optimism may be warranted, but this situation has reversed sharply before, and it can do so again.

2) Earnings Strength Is Broad, Not Just an AI Story

The narrative around this earnings cycle has been dominated by a handful of mega-cap technology names β€” Alphabet, Amazon, Meta β€” whose AI-driven results have genuinely impressed. But the aggregate data tells a more interesting story: the strength isn't concentrated.

According to FactSet, roughly 84% of S&P 500 companies that have reported Q1 2026 results beat earnings-per-share estimates. That's the highest beat rate since Q2 2021 and well above the five-year average of 78%. Revenue beats have been similarly strong. Seven of the eleven S&P 500 sectors are reporting double-digit year-over-year earnings growth, with energy, materials, industrials, consumer discretionary, and healthcare all contributing alongside technology and communication services.

The significance of broad-based strength goes beyond bragging rights. When gains are concentrated in a handful of names, the market's essentially making a bet on those specific companies. When strength is spread across sectors, it reflects something more fundamental: actual economic activity generating actual profits across the economy.

Crestwood Advisors noted in its May 2026 market update that the blended net profit margin for the S&P 500 reached 13.4% in Q1 β€” the highest level since FactSet began tracking the metric in 2009. That's not an AI story. That's a corporate profitability story. The caveat is valuation: the forward price-to-earnings ratio sits above both the five-year and ten-year averages, meaning the market's already pricing in a continuation of this momentum. Strong earnings have validated the premium, but they haven't removed it.

3) Oil's Retreat and What It Means for Inflation and Rate Expectations

Brent crude has fallen sharply over the past two sessions, extending a decline of roughly 11-12% since Iran peace deal optimism began to build earlier in the week. The market's pricing in the possibility that the Strait of Hormuz β€” largely closed to commercial shipping for more than two months β€” could reopen as part of a deal, restoring a significant portion of global oil supply that's been effectively offline.

The ripple effects for the broader economy are meaningful. Elevated energy prices have been a key driver of inflation concerns throughout the conflict, forcing central bankers into a hawkish posture at a time when many market participants were hoping for rate cuts.

If a genuine, sustained reduction in hostilities materializes and oil holds at lower levels, the Federal Reserve would gain real flexibility on the rate-cut timeline. Bond yields have already edged lower in response. Gold, interestingly, has also risen β€” reflecting its dual role as both an inflation hedge and a haven asset during geopolitical uncertainty.

The risk is that the oil market has run ahead of the diplomatic reality. If talks collapse, energy prices could spike sharply β€” reversing both the inflation relief and the bond market gains that markets are currently celebrating.

4) Why Analysts Are Warning the Rally May Be Premature

Not everyone's celebrating. Julius Baer has consistently cautioned that the current environment favors traders over long-term investors, noting that markets have moved through multiple cycles of optimism and disappointment since the war began. The pattern's been consistent: a ceasefire hint triggers a sharp rally in equities and a drop in oil, followed by a reversal when the underlying issues prove more resistant than hoped.

Deutsche Bank has drawn a pointed historical parallel. The S&P 500 rallied more than 10% in the early weeks of Russia's invasion of Ukraine in 2022, on brief optimism over an early negotiated settlement. That optimism faded, and the index went on to fall roughly 25% from peak to trough by October of that year.

The structural issues in the current U.S.-Iran negotiations haven't changed. Iran's nuclear program, its uranium enrichment activities, its ballistic missile capabilities, and its regional proxies are all unresolved. The 14-point framework, if signed, would defer all of those issues to a subsequent 30-day negotiation with no guaranteed outcome.

For anyone managing a portfolio with a time horizon beyond the next few weeks, the prudent move is to distinguish between what markets are pricing and what's actually been agreed. The optimism may point in the right direction, but history suggests that treating it as a done deal is a mistake investors have made before β€” and paid for afterward.

5) The 14-Point Memo: Framework or Illusion?

The memorandum of understanding at the center of market attention is, in substance, a framework for a framework. As reported by Axios and the Wall Street Journal, the current form of the memo would declare an end to hostilities and open a 30-day negotiation period during which Strait of Hormuz restrictions would be gradually lifted and deeper discussions on nuclear issues and sanctions would take place.

Here's the catch: the terms in the memo are largely contingent on a final agreement being reached. If negotiations collapse within that 30-day window, U.S. forces retain the right to restore the blockade or resume military action. That's not peace β€” it's an extended pause with an opt-out clause.

The negotiating gap between the two sides remains wide. Iran's demands include a U.S. military withdrawal from the region, release of frozen assets, sanctions relief, and compensation β€” conditions Washington has reportedly viewed as far beyond acceptable at this stage. The moratorium on uranium enrichment being discussed reportedly ranges from 12 to 15 years, a figure Tehran hasn't publicly embraced.

What has changed is the tone. Both sides appear willing to keep talking rather than escalate, and that's genuinely meaningful. But it's a far cry from the clarity that current market pricing implies. Watch for implementation and concrete steps, not just statements β€” because in this conflict, the gap between words and action has repeatedly been the most important variable of all.

Bottom Line

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Today's market is being driven by a combination of genuine and provisional good news. The earnings picture is legitimately strong β€” broad-based profit growth, record margins, and sector-wide participation all point to an economy whose fundamental engine is running well. That's real, and it matters.

The Iran situation is more provisional. Markets have correctly identified that diplomatic progress is occurring and that the direction of travel is positive, but they've priced that progress as though it's already complete. A 14-point framework for a 30-day negotiation isn't a peace deal. Oil below $100 isn't an open Strait. And "very good talks" isn't a signed agreement.

The investor who reads this moment correctly will hold both truths simultaneously: the fundamental backdrop justifies optimism, and the geopolitical backdrop demands humility. Watch the Strait, watch the enrichment language, and watch whether the 14-point memo actually gets signed β€” because until those boxes are checked, today's celebration is at least partially borrowed from a future that hasn't arrived yet.

Sources:

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