U.S. stocks are climbing to record highs despite war in the Middle East and a major disruption to global oil supplies, as investors bet the conflict will ease before it significantly damages the economy, CNBC reports.

The S&P 500 has rallied sharply since late March, even after Iran effectively choked off tanker traffic through the Strait of Hormuz—a critical route for roughly 20% of the world’s oil. The disruption sent energy prices higher and raised concerns about inflation and global growth.

Still, markets are looking ahead.

“The stock market is always trying to price what the world is going to look like six to 12 months from now,” said Joe Seydl, a senior economist at J.P. Morgan Private Bank.

That forward-looking view is helping drive the rally. Investors largely believe tensions will cool, oil flows will resume, and the economic fallout will be limited.

A fragile ceasefire has raised hopes for a diplomatic resolution, but negotiations remain uncertain and the risk of escalation persists.

At the same time, the domestic backdrop remains relatively strong. Consumer spending is steady, the labor market continues to hold up, and corporate earnings—particularly in technology—have been solid.

Optimism around artificial intelligence and tech stocks has also supported the market, accounting for a significant share of recent gains.

Even so, the outlook hinges on the assumption that the conflict will not worsen.

If oil supplies remain constrained or the war drags on, economists warn the economic impact could deepen, raising the risk of a market pullback.

“Everyone thinks they know what the script is,” Moody’s Analytics chief economist Mark Zandi said. “If they don’t, the market will have some real problems.”