It has not been a good month for stocks. The S & P 500 is down 4.2% in March, as the U.S.-Iran war sends oil prices soaring, new economic data points to stubborn inflation and last year’s excitement around private credit sours into fear. Barclays, however, thinks investors should stay the course. “The fundamentals, including US earnings and a cyclical investment cycle, are stronger than current sentiment implies,” strategist Ajay Rajadhyaksha wrote to clients. He added that, while geopolitical tensions are high right now, the market sees an “eventual de-escalation” on the horizon. “The US can argue that it has severely depleted Iran’s military capability and nuclear ambitions. Iran can claim victory by arguing that the regime survived and that it has established enough deterrence to ensure the conflict doesn’t resume soon,” he added. .SPX 1M mountain SPX 1-mo chart Rajadhyaksha said there are many signs the market anticipates the conflict will be short-lived. “Bonds have treated the war primarily as an inflation shock, seen in the massive bear flattening of the past three weeks,” he said. “Across every major asset class, markets are pricing in a conflict that fades in a few weeks.” That includes oil. The December 2027 futures contract on West Texas Intermediate has risen about $10 to $11 since the war began. However, the need for the U.S. to eventually refill the Strategic Petroleum Reserve should support future pricing, he said. Indeed, the S & P 500 remains less than 6% from its record high above 7,000 reached earlier this year. The Cboe Volatility Index has also eased from a high of 35.3 reached this month and now trades around 27. “There is a wall of worry – but it’s worth climbing,” Rajadhyaksha he said.
