U.S. Stocks Rise as Strong Economic Data Offsets Middle East Conflict Concerns

U.S. stocks closed higher on Wednesday as upbeat labor market data and stronger-than-expected services sector growth helped improve investor sentiment, which had been shaken by escalating geopolitical tensions in the Middle East.

The benchmark S&P 500 rose 0.8% to finish at 6,868.60, while the tech-heavy NASDAQ Composite climbed 1.3% to 22,807.48. The Dow Jones Industrial Average also advanced, gaining 0.5% to end the session at 48,739.41. The rebound came after major indexes suffered notable losses earlier in the week amid rising uncertainty tied to the ongoing conflict involving the United States, Israel, and Iran.

According to Keith Lerner, chief investment officer and chief market strategist at Truist, investors appeared willing to temporarily look beyond the geopolitical situation as oil prices stabilized. He noted that stronger-than-expected economic indicators, including the ISM services index and ADP private payroll data, suggested the U.S. economy remained resilient despite global tensions. These indicators helped reinforce expectations that corporate earnings could remain stable in the near term.

The ADP employment report showed U.S. private payrolls increased by 63,000 jobs in February, exceeding market expectations of 50,000 and marking the strongest monthly gain since July of last year. Much of the growth came from the education and healthcare sector, which added 58,000 positions. Outside of these sectors, job growth has been relatively flat over the past several months.

Additional support for market sentiment came from the ISM services index, which rose to its highest level in three and a half years as demand improved and business conditions remained steady. The Federal Reserve’s Beige Book also indicated that economic activity expanded at a slight to moderate pace across seven of the twelve Fed districts.

Despite the positive data, investors remain cautious as geopolitical risks continue to unfold. The Middle East conflict has entered its fifth day, with U.S. officials stating that Iranian air defenses have been significantly weakened and multiple military targets have been struck. Iran has reportedly responded with missile and drone attacks toward regional locations hosting U.S. bases, increasing concerns about a wider conflict.

Reports also suggested that Iranian representatives may have explored possible negotiations to end the conflict, although Tehran later denied these claims. Meanwhile, NATO forces intercepted a ballistic missile fired toward Turkish airspace, marking a significant escalation involving alliance defenses.

Energy markets remain volatile amid fears that the conflict could disrupt global oil supplies, particularly tanker traffic through the Strait of Hormuz, a critical route for international oil shipments. Brent crude rose 0.6% to $81.87 per barrel, while U.S. West Texas Intermediate crude gained 1.2% to $75.47. Oil prices have surged nearly 12% this week due to supply disruption concerns.

Higher energy prices have also fueled worries about inflation, which could influence Federal Reserve monetary policy. According to the CME FedWatch tool, traders now expect interest rates to remain unchanged until at least July as policymakers monitor inflation risks linked to energy costs.

On the corporate earnings front, cybersecurity firm CrowdStrike reported fourth-quarter results that surpassed Wall Street expectations and issued fiscal 2027 guidance largely in line with forecasts. Company executives highlighted growing demand for cybersecurity solutions as enterprises increasingly adopt artificial intelligence technologies and seek to protect AI-driven workloads and data.

Investors are also watching upcoming earnings reports from companies including Abercrombie & Fitch, Broadcom, and Okta. Meanwhile, markets are awaiting additional labor market data later this week, including Challenger job cuts, weekly jobless claims, and the closely watched nonfarm payrolls report, which could provide clearer insight into the direction of U.S. interest rates in the coming months.