S&P 500 PE looks cheap, but high oil prices still pose a threat.

Wall Street has roared back to record highs even as uncertainty ⁠over ⁠the conflict in Iran lingers, a risk highlighted by a steady ⁠drumbeat of CEO warnings about the economic toll of a prolonged period of high oil prices.

The reason? Stocks look cheap. The S&P 500 ​is trading at the equivalent of 20.8 times its constituents’ expected earnings over the next 12 months. That price/earnings ratio is near its lowest in a year, suggesting U.S. stocks are a better buy now than at ‌the start of 2026, when the benchmark traded at ‌over 22 times earnings.

“Investors and market participants are expecting the war with Iran to end relatively quickly, and so they are discounting the long-term risk of the impact of the war. At the same time the ⁠U.S. consumer and economy ⁠continue to perform strongly,” said Oliver Pursche, senior vice president at Wealthspire Advisors in Westport, Connecticut.

Currently, the Strait of ​Hormuz remains largely closed to oil tankers as a two-week ceasefire is set to expire, while Washington and Tehran appear far from an agreement to resolve the conflict.

About two-thirds of S&P 500 companies that have reported quarterly results since the start of April have voiced some degree of concern about energy prices during their analyst conference calls, according to a Reuters review of transcripts. By comparison, around 17% of S&P 500 companies reporting results between January and ​March mentioned concerns about energy prices.

On Tuesday, GE Aerospace CEO Larry Culp told Reuters the company would have raised its forecast if not for the current uncertainty, citing a strong ⁠first quarter ⁠and visibility into the second. The Ohio-based ⁠company said its outlook assumes a more ​cautious second half, including the risk that airlines scale back maintenance work, delay engine shipments and cut spending if activity weakens. GE shares fell 6%.

Despite the pullbacks in GE and a handful of other ⁠firms expressing caution, analysts and portfolio managers say stock buyers are taking comfort in how cheap the market looks, based in large part on expectations that earnings will surge this year.

The valuation is set to be tested over the next few weeks as investors weigh whether rising profit estimates can hold up against concerns about high energy prices. The biggest potential risk “comes from the outcome of the war with Iran, particularly if consumer spending drops as higher energy prices and higher prices in general begin to sap consumer spending,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

Potential supply chain disruptions could also ⁠hit earnings, he said.

The market’s modest P/E multiple is not the result of falling stock prices. Rather, analysts have rapidly increased their earnings expectations, ⁠largely because of optimism about artificial intelligence. Any widespread failure by companies to meet those high-bar forecasts could quickly make U.S. stocks look expensive, undermining a key support for the recent rally.

While the S&P 500 has gained about 4% year to date, expectations for 2026 year-over-year earnings growth have leapt from 16% in early January to almost 20% last week, according to data from LSEG I/B/E/S. Technology companies account for the bulk of that increase, along with energy and materials companies.

Several companies reporting results in recent days have already flagged that high energy prices could impact their costs, demand for their products and the broad economy. Other heavy hitters reporting this week include Tesla, Intel, Procter & Gamble and American Express.

Delta Air Lines earlier this month cited soaring jet fuel prices as the company pulled all planned capacity growth for the current quarter and forecast profit below Wall Street expectations. Some companies noted the risk from high energy prices but said it was not yet a major concern. During its call, PepsiCo said it typically hedges energy-related ⁠costs through 6 to 12 months.