Wall Street Veteran: War Risks Are Far from Over, but US Stocks Will Not Return to March Lows

When the S&P 500 Index fell more than 9% from its historical high and U.S. President Trump seemed increasingly eager to end the Middle East war that triggered this sell-off, Wall Street veteran strategist Ed Yardeni became convinced that the U.S. stock market had set the stage for a rebound.

On March 31st, the day after the market bottomed, Yardeni released a judgment to clients, stating that the correction had ended. A few days later, he further noted that now was a good time to buy battered tech stocks.

It turned out he was right. As optimism about a pending ceasefire agreement between the U.S. and Iran replaced concerns over the potential major economic shocks from a prolonged war, U.S. stocks steadily rebounded over the next three weeks. This propelled the Nasdaq 100 Index to its longest winning streak since 2013, and the S&P 500 moved above its January highs.

In an interview, Yardeni said: "This sell-off had the characteristics of a capitulation decline. I strongly believe in contrarian indicators—when market sentiment collapses like that, it usually signals that the worst phase is over. History provides many precedents: markets often bottom when things look their bleakest."

However, this does not mean he has turned fully optimistic. With Trump's statements about the war’s imminent end swinging back and forth and peace negotiations evolving into brinkmanship around the crucial Hormuz Strait, Yardeni said he expects the war will cap market gains until the conflict is resolved.

He said: "It’s hard to imagine things will truly end in the coming days or even weeks. The situation could very well remain quite chaotic. I think the market may go through a period of volatility—a consolidation phase that might last throughout the summer."

In nearly half a century on Wall Street, Yardeni—the head of his eponymous research firm—has amassed a large following thanks to repeatedly making bullish calls ahead of record-breaking surges in the stock market.

Of course, he hasn’t always been right. Like many, he was caught off guard in 2022 when the Federal Reserve’s aggressive rate hikes, in response to soaring inflation, triggered a market crash. And last year, when Trump’s tariff policies caused market volatility, he initially underestimated the subsequent strength of the market rebound.

However, he has also made many perfectly timed calls. He correctly identified the market bottom the same month as the 1982 bear market ended; in March 2009, when the S&P 500 Index bottomed, he made another successful forecast. In December last year, he turned bearish on the so-called "Magnificent Seven," and these stocks subsequently dropped in February and March this year.

Early this month, after the market started rebounding, he said tech stock valuations had retreated enough to offer "an entry point attractive to long-term investors." Since then, the Nasdaq 100 Index is up 11%.

Yardeni said that large tech companies have re-established their market dominance and are gradually becoming "all-season stocks." During times of economic uncertainty—such as during the pandemic, periods of surging inflation, or geopolitical turmoil under Trump—investors tend to turn to these companies. He said this group remains "at the helm" of the overall market.

Although he remains cautious in the short term due to the uncertainty of the war, he still maintains his year-end S&P 500 target of 7700 points, which suggests about 8% upside from Wednesday's close.

There is still a large amount of money on the sidelines waiting to enter the market, while corporate earnings continue to be strong. Yardeni said that, in fact, analysts' optimistic forecasts for earnings are one reason the U.S. stock market did not fall further after the U.S. began bombing Iran at the end of February.

Yardeni said: "Even during the sell-off, earnings were still rising—almost as if analysts hadn’t heard that a war had broken out." He added: "I don’t think the market will retest the March 30th low. There’s too much money on the sidelines ready to enter on pullbacks."