Stocks are back at records, but some investing pros think the oil shock is still a big problem for markets

• The S&P 500 hit a fresh record high on Wednesday as investors looked beyond the Iran war.
• Piper Sandler analysts said the rally is "built on hope rather than evidence."
• The oil shock is still a factor, with Goldman estimating Strait of Hormuz flows down 90%.

The S&P 500 hit a fresh all-time high on Wednesday, with the market all but moving on from the Iran war, but some on Wall Street warn that the oil shock still looms.

The stock market's record-setting rally resumed, with the S&P 500 notching its first-ever close above 7,000 on Wednesday.

"As far as the stock market is concerned, the war is over until further notice," Ed Yardeni, president of Yardeni Research, said.

Yet, despite the market's latest move up, the war has not been formally concluded, and the flow of energy and other commodities through the Strait of Hormuz remains highly restricted.

Craig Johnson, Piper Sandler's chief market technician, framed this week's rally as a case of "falling upwards."

"The stock market's ten-day advance appears to be built on hope rather than evidence," he wrote.

Oil is still trading well above prewar levels, but has backed off from recent peaks on de-escalation hopes. Despite the shift in investor sentiment pulling oil prices lower, the Strait of Hormuz is still a critical bottleneck, and damage to oil infrastructure in the region will be long-lasting.

Goldman Sachs analysts said there has not been much of an increase in flows through the Strait of Hormuz yet, with current estimates showing flows are down by 90% from normal levels.

The analysts also noted, "The US blockade of ships going from and to Iranian ports poses downside risks for the remaining Hormuz flows given that Iran-associated tankers have been accounting for most of the recent flows."

The International Energy Agency cut its oil demand outlook on lower supply and higher prices. Oil demand is expected to contract by 80,000 barrels per day, the agency said in its latest release. This would represent the sharpest decline since the COVID-19 pandemic.

The IEA has previously said the Iran War oil disruption is worse than three of history's biggest energy shocks combined, and this week, IEA executive director Fatih Birol warned oil prices are "not reflecting the severity of the problem."

WTI crude was trading at roughly $100 per barrel when the IEA chief said prices were disconnected from the reality of the shock, and they've since fallen to about $90.

The primary threat from an oil shock is inflation. A bearish scenario for markets would be one in which inflation remains high enough that the Federal Reserve cannot lower interest rates, or, in a worst-case scenario, is even forced to raise rates.