On a day when President Trump announced a blockade of the Strait of Hormuz in response to failed negotiations for a peace agreement, stocks surprisingly charged higher with the S&P 500 (SNPINDEX: ^GSPC) gaining 1%.
Investors seemed to shake off the threat around the blockade and the ongoing saber-rattling between the two countries, and stocks got a jolt after Trump said Iran had signaled to his administration its interest in working out a deal.
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With today’s gains, the S&P 500 index is now up 9% from its low point during the war on March 30, and is less than 2% off its all-time high. While oil prices remain elevated, the S&P 500 is now higher than where it was on the eve of the war, and the recovery has been convincing enough that some on Wall Street are saying that the bottom from the war sell-off is in and that investors can expect stocks to rise.
Among the analysts taking a bullish stance recently was Fundstrat’s Tom Lee, the former chief equity strategist at J.P. Morgan, who’s known for calling the bottom early on in the pandemic.
Lee again argued that the bottom is likely in for this cycle, citing recent gains in stocks even as oil prices moved higher, the tailwinds from the ceasefire announcement, which signals further deescalation, and the CBOE Volatility Index (VIX), falling below 20 for the first time since the war started. Sometimes called the fear gauge, a lower VIX reading indicates that investor fears of a crash have subsided.
Additionally, Ed Yardeni of Yardeni Research, who called the market bottom last week, said that investors may be learning to live with the war, much as they have with the war in Ukraine. Yardeni maintained a 7,700 year-end target for the S&P 500, implying 12% upside as of the close on Monday.
While the worst may be over, the stock market is still on unstable ground. After all, even if the war in Iran resolves itself and oil prices come down, there are still the risks that existed before, including historically high valuations, a weak labor market, tariffs, and the threat of both AI disruption and an AI bubble.
Overall, there’s still uncertainty remaining from the war, but the risk of a crash seems to have moderated. Buying opportunistically, for example, in beaten-down tech stocks, looks like a smart idea.
