Despite President Trump’s announcement of a blockade of the Strait of Hormuz, U.S. stocks unexpectedly moved higher on Monday. The S&P 500 rose 1% on the day, rebounding 9% from its low during the war on March 30, and is now above pre-war levels. Some Wall Street strategists have concluded that the bottom from this war sell-off has been confirmed.
Two Major Bullish Voices Align
Tom Lee, a Fundstrat analyst and former chief equity strategist at J.P. Morgan known for his timely market calls, has again spoken out. He cites three reasons supporting the judgment that “the bottom is in.” First, stocks are rising even as oil prices move higher, showing signs of desensitization to geopolitical risks. Second, positive news from ceasefire negotiations provides support for further de-escalation. Third, the CBOE Volatility Index (VIX) has fallen below 20 for the first time since the war began — a lower VIX reading indicates that investor fears of a market crash have significantly subsided.
Meanwhile, Ed Yardeni of Yardeni Research, who predicted the market bottom last week, further stated that investors may be learning to “live with the war,” much as they have adapted to the Russia-Ukraine conflict. Yardeni maintains his year-end target of 7,700 for the S&P 500, implying approximately 12% upside from Monday’s close.
Three Key Factors Will Determine Market Direction
First, although Trump announced a blockade of the Strait of Hormuz, the market did not panic sell. On the contrary, stocks received a brief boost after Trump said Iran had signaled to his administration its interest in working out a deal. This suggests that investors are shifting their focus from geopolitical conflicts to other fundamental factors.
Second, oil prices remain elevated even as stocks have rebounded. If the situation in the Middle East deteriorates further, leading to a spike in energy prices, inflationary pressures could once again weigh on stock market valuations.
Third, even if the Iran war were to completely subside, the market still faces multiple challenges: historically high valuations, a weak labor market, tariff uncertainties, and the dual risks of both AI disruption and an AI bubble.
How Should Investors Respond?
In an optimistic scenario, if ceasefire negotiations continue to advance and oil prices retreat, U.S. stocks are expected to extend their rebound, with the S&P 500 challenging new all-time highs. In a pessimistic scenario, any reversal of the situation could trigger a double-bottom test. In terms of strategy, buying beaten-down technology stocks on dips is seen as a reasonable approach at present. However, overall position sizes should not be too heavy, as confirmation of a war bottom takes time.
Conclusion
Wall Street is betting that “the worst of the Iran war is behind us.” A 9% rebound from market lows, the VIX falling below 20, and initial signs of a ceasefire — all of these support the bottom-calling judgment. However, the pre-war valuation bubble, economic weakness, and policy uncertainties have not disappeared. Investors can moderately participate in the rebound, but maintaining caution remains necessary.
