By Martin Baccardax
U.S. stock futures suggested a solid rebound Monday following last week's selloff that wiped out nearly all of the S&P 500's gains for the past six months as investors bet the U.S.-Iran conflict is nearing an end and the economy is sound enough to withstand the impact of surging crude prices.
It's a brave position to take, however, given that President Donald Trump himself has yet to articulate a convincing end-game strategy for the war, which is now entering its third week, and was compelled over the weekend to call upon allies and trading foes to join in support of a U.S. effort to police the Strait of Hormuz.
Crude also was moving higher again Monday, following on from last week's 12% gain, with Brent futures for May delivery rising 2.2% to $105.42 a barrel early Monday.
But there's also some logic behind it, as well.
The U.S. bombing of Kharg Island, Iran's central crude export hub, may have cut off Tehran's key source of funds, and reports said some non-U.S. affiliated tankers have started to squeeze through the Strait of Hormuz without threat of attack.
Here at home, Wall Street analysts have clung to their end-of-year projections for the S&P 500, with a median price target of around 7750 even as the benchmark sits around 5% south of the all-time high it reached in late January.
"The apparent resilience in the S&P 500 is attributable to the increasing bullishness of industry analysts' consensus estimates for earnings per share in 2026 and 2027," said Ed Yardeni, president and founder of Yardeni Research.
"Apparently, they did not get the memo about the possible negative consequences of a protracted war and closure of the Strait," he added. "So S&P 500 companies' aggregate forward earnings rose to a record high last week of $328.80 per share."
That outlook, paired against the market's broader pullback, puts the valuation of S&P 500 stocks at around 20.2 times the collective earnings they're likely to generate over the next 12 months. That's down around 8.2% from the start of the year and the cheapest since September 2022.
Still, that might not be enough to trigger a sustainable rebound, according to Lori Calvasina, who heads U.S. equity strategy at RBC Capital Markets.
"The stock market is in the midst of a discovery process about how the Iran conflict will evolve, and that it is too early to make any major changes in assumptions in our modeling at this time," she said in a note published Sunday.
Her base case heading into the month was for a drawdown of between 5% and 10% for the S&P 500. With the war now looking to extend into the spring, that forecast could change.
"If recession, oil price shock, and/or contagion fears continue to mount, a tier 2 'growth scare' drawdown in the 14% to 20% range is a distinct possibility," she cautioned.
That puts a great deal of focus on how central banks around the world, including the Federal Reserve, might respond.
Eight of the 10 G-10 central banks are set to meet this week, with the U.S central bank issuing both its interest rate decision as well as fresh growth and inflation forecasts on Wednesday. The decisions arrive as traders don't see global oil prices returning to pre-war levels until August of next year.
Investors also have been paring bets on the Fed's ability to lower rates as inflation pressures brew and see just one quarter-point reduction between now and the end of the year.
Thomas Matthews, head of Asia Pacific markets at Capital Economics, thinks a solid U.S. economy will prevent the Fed from being too dovish, and thus rate markets will remain closely tied to oil prices over the near term.
"If prices remain around current levels for too much longer, the final [interest rate] cut this year still priced into money markets may be off the cards as well," he said.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 16, 2026 06:18 ET (10:18 GMT)
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