By Martin Baccardax
The stocks market's brief Monday rebound, powered by a pullback in Treasury bond yields, hopes for a conclusion to the war in Iran, and repositioning into the end of the first quarter, has some investors wondering if it is time to re-enter the market.
The S&P 500 turned south in late afternoon trading, leaving it some 9.4% south of the all-time closing peak it reached in late January and flirting with correction territory over the final trading days of the month. But that doesn't mean there aren't early "buy-the-dip" debates echoing around Wall Street. And there are good reasons why.
The broadest index of U.S. blue chip shares is significantly cheaper than it was just a few weeks ago, with the outsize price action, set against a quiet improvement in both quarterly and full-year earnings forecasts, resulting in a 17% compression of the benchmark's price-to-earnings ratio, according to Mike Wilson, Morgan Stanley's chief U.S. equity strategist.
Wall Street is also holding firm to its end-of-year price targets for the S&P 500, with a consensus of around 7700 points, suggesting at least a 20% gain from current levels.
The market's biggest stocks are also on sale, with an index of the so-called Magnificent Seven tech giants now approaching bear market status, having fallen more than 17% from the all-time highs of late October.
The basket is also trading at a forward PE multiple of 21.5, a mere 5% premium to the current S&P 500 valuation of 20.5, but also the price for a group of stocks that represents around a third of the benchmark's total market value.
The sheer weight of a Nvidia bounce, meanwhile, would be compelling on its own. As Jay Woods of Freedom Capital Markets notes, the AI chip maker comprises around 8.5% of the S&P 500's market cap, double that of the entire energy sector.
The broader tech sector has also taken a bruising this quarter, with the Information Technology and Communications Services sector ETFs down a bit more than 9% since the start of the year, perhaps making them ripe for a rebound once losses are marked into the books over the three months ending in March.
The pullback in Treasury bond markets will also enhance the present value of corporate profits, a crucial element in pricing stocks, which could support markets heading into the second quarter.
The major caveat to that, of course, is the reason for the bond market rally itself: If investors are worried surging oil prices will destroy consumer demand and weaken corporate profit margins as a result of renewed inflation pressures, the benefit of lower Treasury yields will be more than offset by recession risks.
"While the probability of recession in the U.S. remains low, the chances could rise to around 15% if crude oil prices remain at $100 per barrel, and to around 30% if prices reach $150 a barrel," said Jason Pride and Michael Reynolds at Glenmede.
"While the conflict may lift inflation and weigh on growth at the margin, the U.S. economy enters this period from a position of strength, making a recession unlikely absent further shocks," the pair added in a note published Monday. "Investors should monitor Q2 developments across geopolitics, policy, and financial conditions for signs of changing risk."
And it also needs to be remembered the S&P 500 is trading around 3% south of its 200-day moving average, which it breached for the first time in a year on Feb. 20.
Stocks will have a difficult time sustaining a second-quarter comeback until that target, pegged at around 6624 points, is firmly retaken.
"There's an old adage in the Wall Street community that bad things happen under the 200-day moving average. As a trend follower this rings true," Woods said.
But he also notes "the biggest rallies in the market also happen under the 200-day moving average."
"If this goes lower, will this feel like a garden variety pullback? Heck no, not with these headlines," he said. "But will this be the time to put money to work where we should find a more stable floor and get that snap-back rally? That is very likely."
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 30, 2026 16:10 ET (20:10 GMT)
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