By Paul R. La Monica
It's anybody's guess at this point as to when the war in Iran will end. Investors and consumers need to buckle down and brace for a lot more volatility ahead -- especially when it comes to oil prices.
Stocks have suffered as crude has spiked. The major market indexes fell for the fourth straight week, pushing the Nasdaq Composite to the precipice of a correction, which would mark a 10% drop from a recent high. The Russell 2000, full of smaller companies with more exposure to the U.S. economy, is officially in correction territory as of Friday's close.
So what's next? It's tempting to advise investors to buy the dip. History does show that stocks often bounce back -- and occasionally quickly -- following geopolitical conflicts. But the uncertainty about when this war will end, and what it will continue to do to oil prices, makes it a dicier proposition to try and time a bottom.
Strategists at Bank of America Securities noted in a report Friday that the stock market hasn't really sufffered all that much yet. The S&P 500 is down about 5% since the start of the war in Iran, merely halfway to a correction. The strategists added that there's also less money on the sidelines that can be put into stocks. Cash levels for instiutional investors are near 5-year lows.
Another big concern: The spike in crude has raised fears of stagflation, or stagnant growth coupled with higher prices. As such, traders are no longer convinced that the Federal Reserve and other global central banks will be able to cut interest rates anytime soon. The market is even pricing in a small chance of a rate hike by the Fed at its April meeting.
"Supply-driven oil spikes have hurt equities historically, and if stagflation is back on the table, central banks can't simply ease their way out of a slowdown," the BofA strategists said. With that in mind, they think investors should focus more on large value stocks in more cyclical sectors, such as banks, energy, metals, and mining, all of which could hold up better than growth stocks.
Others argue that investors shouldn't overlook megacap techs, though. After all, the Magnificent Seven has been hit hard recently, too, and several stocks in that septet -- including Nvidia, Amazon, and Microsoft -- trade at price-to-earnings multiples that are not too far from the S&P 500's level. These tech giants are still expected to post strong earnings growth, with profits forecast to rise nearly 20% this year.
"The Mag 7 is still expected to see better [earnings per share] growth than the rest of the S&P 500 in the year ahead, and cyclical pressures from an extended war or even a shorter war with lasting damage to commodity markets seem likely to weigh on the rest of the index more than the Mag 7," said Lori Calvasina, head of U.S. equity strategy research at RBC Capital Markets, in a report Friday.
Still, volatility on Wall Street is likely to persist until there is a clearer sign of when, and how, the Iran war will end.
"We continue to emphasize the conflict's breadth and duration as the main factors shaping markets," said Eric Freedman, chief investment officer for Northern Trust Wealth Management, in a report Friday.
He added that "the longer the conflict lasts and the broader the geographic and infrastructure repercussions, the greater the risk that [oil] prices will remain elevated," adding that higher oil prices "act like a resistance ramp on a treadmill."
In other words, investors may find it a lot more difficult to keep up if the incline gets steeper and steeper.
Write to Paul R. La Monica at paul.lamonica@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 21, 2026 11:09 ET (15:09 GMT)
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