Last Monday saw the S&P 500 down 9.1% from its January 27 high, which we believe marks the trough of the latest pullback, for now. That was our call on Tuesday. The next two days could make or break our call.
Today, President Donald Trump issued a final, profanely worded ultimatum, setting a firm deadline for what he is calling "Power Plant Day." He specified on Truth Social that Tuesday will be "Power Plant Day, and Bridge Day, all wrapped up in one." He warned the Iranian regime that they would be "living in Hell" if the blockade of the Strait of Hormuz isn't lifted by 8:00 p.m. Today, Trump also told Israeli media (Channel 12) and the Wall Street Journal that the US is currently engaged in "deep" negotiations and that there is still a "good chance" a deal could be reached before the Tuesday night deadline.
Our call of a market bottom doesn't come with a money-back guarantee, of course. However, history offers some reassurance: The S&P 500 has been higher two years after the past four major US military engagements, with gains of 31% to 44% following the Korean War, the Iraq War, the Gulf War, and World War II (chart).
We think there is good value in the stock market at current levels. The forward P/E of the S&P 500 peaked last year at 23.0 on October 27 (chart). It fell 17.8% to 18.9 through Monday of last week (chart). Over that same period, S&P 500 forward earnings rose 12.7%, reaching record-high territory (chart). The valuation multiple initially dropped due to concerns about AI companies' profitability, then fell more quickly amid fears that the war would trigger a global recession. However, industry analysts didn't blink and continued to raise their collective earnings outlook.
