Why gold's recent declines could be good news for the stock market

• Gold prices have tumbled since the start of the Iran war, bucking the metal's safe-haven status.
• The S&P 500-to-gold ratio has popped in this time, a bullish sign for equities, Morgan Stanley said.
• Morgan Stanley's Mike Wilson said he sees no evidence any adjustment to EPS outlooks are warranted.

Gold hasn't lived up to its status as a safe-haven asset during the three weeks of the Iran war, and that might actually be good news for equity investors, Morgan Stanley said.

The S&P 500-to-gold ratio has surged since the start of the war in Iran, which Morgan Stanley's top equity strategist, Mike Wilson, said is a bullish indicator for the US stock market.

"One of the more constructive recent market developments is that the S&P in gold terms has shot higher by 12% since the conflict began three weeks ago," Wilson wrote in a note on Monday.

The precious metal has fallen 18% since the US and Israel's initial strike on Iran, while the S&P 500 is down less than 4% in the same period. The metal is officially in a bear market, down more than 20% from its January peak above $5,600.

Wilson said the commodity market moves offer investors valuable insights within "the fog of war."

"The sharp fall in gold is perhaps the best signal that momentum is moving in favor of the US in this conflict more than the popular view would suggest," he wrote, explaining that the jump in the S&P 500-to-gold ratio triggered some buy signals based on analysis of some technical indicators.

"We also view that as a favorable sign that the cadence of US economic and earnings activity will likely remain constructive throughout this conflict and after it simmers down. For now, we don't see the evidence to suggest we need to meaningfully adjust our EPS forecasts," the strategist added.

Morgan Stanley considers the S&P 500-to-gold ratio—which measures the price of an ounce of gold against the value of the benchmark index—a gauge of what stocks are discounting relative to the overall health of the economy and corporate performance, as well as a measure of consumer confidence. With gold's latest decline, the S&P 500 has been surging relative to the metal.

The bank also said another potential factor in gold's recent stumble is that some governments may need to sell some of their gold reserves to cover higher costs associated with the war, such as price spikes in oil and other commodities.

Recent performance of the ratio suggests markets aren't complacent to recent geopolitical risks as some other forecasters have warned, Morgan Stanley said. JPMorgan recently cut its 2026 S&P 500 price target, warning that investors are too lax about the oil shock and the potential impact on markets and the economy.