It wasn’t a good month for stocks. The S&P 500 fell 4.2% in March as the war between the U.S. and Iran sent oil prices soaring, new economic data showed rising inflation and last year’s excitement over private credit exacerbated worries. But Barclays believes investors should stay the course. “Fundamentals such as U.S. earnings and the cyclical investment cycle are stronger than current conditions suggest,” strategist Ajay Rajadhyaksha said in a letter to clients. He added that although geopolitical tensions are currently high, the market sees an “eventual de-escalation” on the horizon. He added: “The United States can claim to have significantly reduced Iran’s military power and nuclear ambitions. Iran can claim victory by saying it has established sufficient deterrence to ensure that the regime survives and the conflict does not resume soon.” .SPX 1M Mountain SPX 1 Month Chart Mr. Rajadhyaksha said there were many signs that the market expected the conflict to be short-lived. “Bonds are treating the war primarily as an inflation shock, as seen in the massive flattening of the bear market over the past three weeks,” he said. “Across all major asset classes, markets are pricing in a conflict that will subside in the coming weeks,” including oil. West Texas Intermediate’s December 2027 futures have risen about $10 to $11 since the war began. But ultimately the U.S. need to replenish its strategic oil reserves should support future pricing, he said. In fact, the S&P 500 index is less than 6% from its all-time high of more than 7,000 hit earlier this year. The CBOE Volatility Index has also fallen from its all-time high of 35.3 this month, and is currently hovering around 27. “There’s a wall of anxiety, but it’s worth the climb,” Rajadhyaksha said.
