The market’s bottom is nearer than you realize
Market Volatility and the Path Forward
When the market faces turbulence, savvy investors often prepare their resources for potential opportunities. This is especially true in times of uncertainty, as seen in the current economic climate. While the Dow Jones Industrial Average declined by 0.9% this week, it has entered correction territory. Similarly, the Nasdaq Composite fell by 3.2%, and the S&P 500 dropped 2.1%. These declines highlight the challenges that investors are currently facing.
The ongoing concerns about the potential conflict with Iran have contributed to increased market volatility. The Cboe Volatility Index (VIX), often referred to as the “fear index,” closed at its highest level in nearly a year, reaching 2025. However, despite this spike, the VIX is still far from the levels that would signal a complete market collapse, according to David Rosenberg, founder of Rosenberg Research. He notes that there is a lack of capitulation in the market, which means investors are not yet panicking.
Potential for a Deal
President Donald Trump’s actions suggest that he may be open to a diplomatic solution. On Thursday, he extended the deadline for Iran to open the Strait of Hormuz from March 27 to April 6. Additionally, he has expressed a preference for the conflict to end within weeks. Chris Harvey, head of equity and portfolio strategy at CIBC Capital Markets, comments on this shift, stating that “the Trump Put has been struck.” This implies that there is optimism in the market, with many believing that there is light at the end of the tunnel.
Valuation Indicators
Valuations are also pointing toward a possible end to the current downturn. The S&P 500 is trading at just under 20 times 12-month forward earnings, a significant drop from over 22 at the end of 2025. Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, notes that this decline is comparable to those seen in 2015 and 2023. At the same time, expected earnings growth for the next 12 months has accelerated to 17%. Historical data suggests that when these trends coincide, the S&P 500 has typically gained a median of 10% over the following six months, outperforming the long-term average of 5%.
Wilson emphasizes that this correction is part of a broader bull market that began in April after a period of recession. His analysis indicates that the correction is well underway, both in terms of time and price.
Economic Factors
The economy will play a crucial role in determining whether these predictions come to fruition. Higher inflation driven by rising oil prices is likely to keep the Federal Reserve from making any immediate changes to interest rates. This means that the market can no longer rely on the support of lower rates. However, the Chicago Fed National Financial Conditions Index remains looser than its historical average, indicating that money is still flowing freely. This could help sustain economic growth.
Economists have only slightly reduced their growth forecasts for 2026 U.S. gross domestic product, now standing at 2.4%. This suggests that the impact of the Iran conflict on the broader economy may not be as severe as initially feared.
Potential for Further Decline
Despite these positive indicators, the market could still face further declines. The S&P 500 is currently just under 6400, having dropped 8.5% from its record high. Adam Turnquist, LPL Financial’s chief technical strategist, notes that with support at 6500 broken, the next key level to watch is 6150. If this level is breached, the target would be 6000, representing an additional 6.1% drop from the current level.
However, it is important to note that a bottom is likely closer than many investors believe. While the market may continue to fluctuate, the underlying fundamentals suggest that a recovery is on the horizon.
