Stock Market Rebounds Amid Easing Tensions

Dip-buying has gained momentum in the stock market following a volatile period that saw the S&P 500 decline by as much as 9%. Stocks experienced a significant rally on Tuesday, fueled by prospects of reduced tensions between Iran and the United States, with both the S&P 500 and Nasdaq 100 indexes rising by 3% or more.

Why Now Could Be a Good Time to Invest

Despite the recent gains, the S&P 500 remains 6% lower since the beginning of the current conflict. Jeff Weniger, Head of Equity Strategy at WisdomTree, identified three key factors supporting a positive market outlook in a recent interview with Business Insider.

Stronger Earnings Outlook

Surprisingly, Wall Street’s consensus forward earnings estimates for the S&P 500 were revised upward in March, even as oil prices surged and the market experienced a downturn. Weniger explained that this discrepancy – stronger earnings expectations coupled with a declining market – presents a potential buying opportunity. He noted that earnings per share estimates have risen from around $310-$315 to $323 while the S&P 500 has fallen from 7,000 to 6,400.

Volatility Index Signals Potential Bottom

The CBOE Volatility Index (VIX), which gauges investor expectations for market volatility, spiked as the market dipped. On Monday, the VIX reached 30, a level Weniger believes indicates peaking uncertainty and a potential market bottom. “When the VIX is north of 30… you generally come back three, six, nine months later not regretting it,” he stated.

Mispriced Risks Related to Oil

Weniger argues that investors have been overly pessimistic regarding a resolution to the conflict in Iran, leading to a mispricing of related risks, particularly concerning oil prices. He believes expectations are skewed towards further increases in oil prices, creating potential for stock market gains if those expectations adjust.

Oil Price Expectations and Economic Concerns

A recent Bank of America Fund Manager Survey revealed that only 4% of respondents anticipated Brent crude prices falling below $60 a barrel by the end of 2026. Brent crude was trading around $104 a barrel as of Tuesday afternoon. Weniger highlighted that a move towards $60, a level seen as recently as January, doesn’t need to be the base case, but simply more probable than the current consensus.

Rate Cut Potential

The market’s concerns about stagflation and rising interest rates, amplified by the conflict, are also potentially overblown, according to Weniger. He believes stagflation is unlikely to materialize in the near term and that the Federal Reserve is more likely to cut rates than raise them, given the current economic conditions and modest loan growth. “I still do think that the path of least resistance for the Federal Reserve is to cut rates,” Weniger concluded.