When the going gets tough, the tough start readying their dry powder for deployment.
And yes, it’s tough out there. While the Dow Jones Industrial Average has declined just 0.8% this week, the S&P 500 index has fallen 2%, while the Nasdaq Composite has slumped 3.1% and is now officially in correction territory. Not even an extension of President Donald Trump’s deadline to attack Iran’s power grid could help the market find support.
The market’s concerns about the Iran war are reflected in the Cboe Volatility Index, or VIX, which looks set to close at its highest level since April 22, 2025. Still, at 30, it’s not close enough to 40 to signal a washout, according to Rosenberg Research founder David Rosenberg. “One of the most interesting aspects of this market is the complete lack of capitulation,” he writes.
But that moment may be getting close. For one, Trump clearly wants to leave an opening for a deal. On Thursday, he said he was extending Iran’s deadline to open the Strait of Hormuz to April 6, from the March 27 deadline he had offered Monday. He has also said on multiple occasions that he prefers that the war end in a matter of weeks. “The Trump Put has been struck,” writes Chris Harvey, head of equity and portfolio strategy at CIBC Capital Markets. “Let’s just say there is plenty of light.”
Valuations suggest an end may be near. The S&P 500 trades at just under 20 times 12 month forward earnings, down 12% from just over 22 at the end of 2025. Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, notes that the decline is “as significant” as the ones that occurred in 2015 and 2023. At the same time, expected earnings growth for the next 12 months has accelerated to 17%. When the two trends have occurred simultaneously in the past, the S&P 500 has gone on to gain a median 10% over the following six months, above the long-term average of 5%, Wilson’s data show.
“We remain convicted that this is a correction in a bull market that started last April from the depths of a rolling recession,” he writes. “Our work suggests the correction is well advanced not only in time but price.”
The economy will determine if he is right. Higher inflation caused by rising oil prices is likely to keep the Federal Reserve’s hands tied for now, which means that the markets can no longer count on a boost from lower rates. Still, the Chicago Fed National Financial Conditions Index remains looser than its historical average, notes Seaport Research Partners Chief Equity Strategist Jonathan Golub, a sign that money is still freely available and can help keep the economy grow. What’s more, economists have reduced their growth forecasts for 2026 U.S. gross domestic product by only a tenth of a percentage point, to 2.4%, since the Iran conflict.
That’s not to say that the market won’t fall further. At just under 6400, the S&P 500 has dropped 8.5% from its record high and could be well on its way toward a correction. With support at 6500 broken, 6150 becomes the next level in play, writes Adam Turnquist, LPL Financial’s chief technical strategist. After that, 6000 would be the target. That would mean the stock market could drop another 6% before finally finding a bottom.
But make no mistake—a bottom is likely closer than investors think.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com