What a difference a war makes.
Against the backdrop of the Iran conflict, investors in our latest Big Money poll don't see much of a gain in the S&P 500 this year. But they're more bullish than six months ago and see opportunities in areas like small-caps, international stocks, and the year's hottest sector: energy.
Barron's conducts the Big Money poll twice a year, in the spring and fall, with the help of Erdos Media Research in Ramsey, N.J. For this poll, we received 105 responses from March 25 to April 10. Our questionnaire is sent to portfolio managers and strategists throughout the country.
Respondents were more upbeat on stocks than they were last fall. More than 54% of Big Money participants said they had a bullish outlook for the next 12 months, up from 47% in our survey in October. Bearish sentiment slipped to 17% from 19%. About 29% of respondents were neutral on stocks, down from 34% in our prior survey.
That doesn't mean the war and other headwinds aren't taking a toll. About 59% of respondents cited geopolitical conflict, stagflation, and higher energy prices as the biggest concerns over the next six months. Their average year-end target for the S&P 500: 7059. That's near current levels, and well below Wall Street's consensus average of 7460.
The poll may be skewed a bit bearish; most responses came in as the Iran war was raging, before the cease-fire and market rebound. But there's still unease; 41% of respondents expect a bear market within the next 12 months, up from 38% in October.
Investors aren't sanguine on corporate profits. Only 19% of respondents expect S&P 500 earnings growth to top 10% this year. About 30% expect earnings to increase 6% to 10%, and 28% forecast profits rising 1% to 5%. All those estimates are well below Wall Street analysts' consensus forecast for 18% profit growth this year, according to FactSet.
One bit of relief, investors say, is that the Federal Reserve should maintain its independence under a new chair, widely expected to be Kevin Warsh. About 54% of respondents say they are confident in Warsh. Just 7% had an unfavorable opinion of him. The remaining 39% had no view.
Warsh is in a tight spot; President Donald Trump's demand for a criminal probe of Fed Chair Jerome Powell is holding up Warsh's approval in the Senate, though he is still expected to be confirmed in coming months. Trump wants Warsh to cut rates, moreover, though Warsh promised in hearings that he would maintain Fed independence.
Most of our poll respondents (68%) say the Fed's current policy stance is appropriate. Investors expect Warsh to maintain the Fed's data-driven approach, with some tweaks.
"Warsh is a credible choice and he's not in Trump's pocket," says Lori Van Dusen, CEO of LVW Advisors in Pittsford, N.Y.
There's no consensus on where rates go from here. The federal-funds rate is now around 3.75%. Half of respondents expect it to fall by the end of the year, 34% think it will remain unchanged, and 16% predict a hike.
Bonds are a toss-up. Inflation expectations have risen as markets price in higher energy costs, pushing up bond yields. Investors in our poll were split on the next moves. About 45% expect the 10-year Treasury yield to be higher a year from now; the remainder see flat or slightly declining yields. Investors have kept their bond exposure steady at an average 17% since our last poll.
One area of agreement: Oil will be higher for longer. Even if oil flows soon through the Strait of Hormuz, energy is likely to price in higher geopolitical risk premiums. The median forecast in our poll is for oil to cost $80 a barrel a year from now, 20% higher than before the war.
The oil shock is keeping some investors from taking a more bullish view.
"High commodity prices are going to percolate through everything over the next two quarters, and I expect inflation to increase," says Peter Tuz, president of Chase Investment Counsel in Charlottesville, Va. He expects the Fed to hold rates steady until inflation settles and sees S&P 500 earnings growth on the lower end, at 6% to 10% for the year.
Bearish investors say the market's recovery masks underlying fractures. "Short covering" may have helped fuel the rebound, says Thomas Forester, chief investment officer of Forester Capital Management. Traders who had wagered against the market were forced to buy stocks as markets surged with the cease-fire. That isn't a good reason to be bullish, he says. Along with worries about an artificial-intelligence bubble, "there are housing headwinds, China's economy looks soft, and there's the oil shock."
Why The Bulls Are Still In Charge
The market isn't buying the bearish story. Stocks have rebounded since the Iran war started; the S&P 500 and Nasdaq Composite recently hit record highs. The major indexes are now in positive territory this year. Small-caps are having a banner run, with the Russell 2000 index up 11.4%.
Markets are betting the war will end soon, easing the energy pressure and allowing the U.S. economy to keep growing. "I'm more bullish now because of the cease-fire," says Jonathan Reichek, a portfolio manager with Brasada Capital Management in Houston.
Earnings are coming in strong, supplying another bulwark. More than 85 companies have reported first-quarter results and 87% have beaten consensus estimates, up from the five-year average of 78%, according to FactSet. Growth is strongest in tech, with profits estimated to be up 45% from a year ago, but other sectors are also delivering solid gains, including financials, energy, and utilities.
"We're still on track to have double-digit earnings growth this year. The market is resilient," says Dory Wiley, president and CEO of Commerce Street Holdings in Dallas.
Wall Street is more optimistic on S&P 500 earnings than at the start of the year. That 18% earnings-growth figure for 2026 is up from nearly 15% in January, according to FactSet. Leading the charge for full-year earnings are energy, tech, and materials.
Big Money investors see the market as more fairly priced. About 42% of respondents said stocks are overvalued, down from 57% six months ago. The remaining 46% say stocks are fairly valued, and 12% say stocks look cheap.
The S&P 500 is hardly inexpensive at 21 times forward earnings, above its 10-year average of 19. That premium is warranted, some investors said. While tech -- especially the Magnificent Seven -- is doing the heavy lifting, earnings growth is broadening. Mag Seven earnings growth is estimated at 24.6% this year; the other 493 companies in the S&P 500 should deliver 15.9%, according to FactSet estimates.
"Earnings growth in the midteens seems right," says advisor Jon Smucker with Marietta Investment Partners in Milwaukee. "The tax bill will help a lot. Consumers are still spending. Oil has been volatile, but underlying demand trends haven't changed."
'Big Money' Picks and Pans
Energy has been the hottest sector this year, up 25%. Yet about 24% of investors cited it as the most attractive sector, against 14% seeing it as the least attractive.
The sector's 10% slump since early April may be a good buying opportunity, says Amy Robinson, CEO of Robinson Value Management in San Antonio. "Energy has been out of favor, but the stocks are well-positioned and have become more affordable."
Eric Green, chief investment officer with Penn Capital in Philadelphia, also favors energy. Even with an Iran peace deal, it would only take a few missiles from militants to disrupt the flow of energy again, he says: "I'm significantly overweight energy. The sector looks better than before."
Tuz's top energy pick is services firm SLB. Damage to infrastructure in the Middle East will benefit SLB, he says, and prospects are improving for exploration and production in less-volatile areas. Baker Hughes and Halliburton look attractive for similar reasons, he adds.
The tech sector is more of a toss-up, investors say. While 17% cite it as the most attractive sector, another 17% say it was the least. Overvaluation and worries about AI disruption top the list of concerns. Within tech, Palantir Technologies and Nvidia came in as the most overvalued stocks in our poll. Tesla was cited as the priciest stock overall, named by 27% of respondents.
There wasn't a strong consensus about top stocks, though Microsoft, Boeing, and Alphabet were the most popular, receiving multiple votes.
Several investors also named Micron Technology as a pick. The memory-chip maker has surged on AI-related demand, but investors are skeptical that the good times will last. The stock trades below 10 times earnings due to concerns that a cyclical glut is building and will decimate chip prices.
That doesn't faze Harris Nydick with CFS Investment Advisory Services in Totowa, N.J., who favors Micron. The company has told investors that while more chip capacity is coming globally, it won't start to affect supplies until 2027, while demand forecasts have escalated. AI-related growth should keep the stock moving up, Nydick says.
Many investors see better values beyond the S&P 500. Nearly 30% of participants expect mid-caps to be the best equity category over the next 12 months.
Small-caps also look appealing, favored by 36% of investors. "All the ingredients are there for good year," says Penn Capital's Green. He expects merger activity to pick up, benefiting smaller companies, and sees earnings gains from tax changes and deregulatory moves by the Trump administration.
Valuations are attractive, too. The S&P Small Cap 600 index trades at 15.5 times earnings estimates for the next 12 months. That's a 26% discount to the S&P 500, compared with its 10-year average discount of 15%, according to FactSet.
The foreign-stock rally took some hits with the war, but Big Money investors aren't deterred. Nearly 66% of respondents say they're bullish on non-U. S. equities, and 43% say they plan to increase exposure to international stocks, which have rebounded since the cease-fire.
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