Markets Rally Despite Geopolitical Risks as Energy and Defense Stocks Lead Gains

U.S. equity markets advanced Friday, with the Dow Jones Industrial Average closing up 248.7 points, or 0.8%, at 31,012.4. The S&P 500 gained 0.5% and the Nasdaq Composite rose 0.3%, as investors reacted to mixed signals from geopolitical developments and economic policy speculation. The uptick came despite ongoing tensions in the Middle East, where Iran’s recent military drills near the Strait of Hormuz heightened fears of supply disruption, spurring a 2.1% rise in crude oil futures (CL=F) to $88.42 per barrel. The energy and defense sectors emerged as top performers, with ExxonMobil and Chevron posting gains of 1.9% and 2.3%, respectively. Defense contractors including Lockheed Martin and Raytheon Technologies rose 2.7% and 2.1%, reflecting investor appetite for defensive assets amid regional instability. Market participants also priced in potential trade policy shifts, with futures indicating a 68% probability of a 25% tariff on Chinese imports under a hypothetical second Trump administration, according to CME Group data. In contrast, the AI data center theme stumbled, with shares of Apple (AAPL) declining 1.4% despite a strong earnings report earlier in the week. The broader sector saw a 1.8% pullback, as investors reassessed valuation metrics following a surge in bond yields. The CBOE Volatility Index (^VIX) dipped 3.2% to 14.7, signaling reduced near-term fear despite geopolitical jitters. The rally underscores market resilience to macro risks, with investors favoring cyclical and defensive assets over high-growth tech plays. Energy and defense exposure appears to be a key driver, while AI infrastructure stocks face renewed scrutiny as rate expectations remain elevated.