Despite the Iran conflict showing little sign of abating, Wall Street strategists are urging investors to begin re-entering the stock market. A pullback in the S&P 500 and Nasdaq 100 indices this month has dampened investor confidence, as hostilities in the Middle East have driven up oil prices and sparked inflation concerns. Nevertheless, equity strategists from Barclays, CIBC Capital Markets, and Truist Advisory Services Inc. advise clients to look past near-term risks, citing attractive valuations, solid earnings expectations, optimism about artificial intelligence (AI) technology, and the historical tendency for markets to rebound after geopolitical shocks. These views are providing a boost of confidence for traders. The S&P 500 is on track for a fifth consecutive weekly decline, having lost nearly 6% since the outbreak of the Iran conflict. Sentiment indicators, often viewed as contrarian signals, are at depressed levels. Furthermore, the index's forward 12-month price-to-earnings ratio stands at 19.5, aligning with its average over the past decade.

Christopher Harvey, Head of Equity and Portfolio Strategy at CIBC Capital Markets, wrote in a research note on Thursday, "Overall, the market is in a 'walk, don't run' phase, but the starting gun has been fired." Short sellers dominated trading on Thursday, with the S&P 500 falling 1.7% to 6,477.16, marking its worst single-day performance since January. As doubts grew about a potential near-term ceasefire between the US and Iran, the Cboe Volatility Index jumped above 27. A gauge of expected volatility for the Nasdaq 100 hovered near 30. This decline leaves the S&P 500 nearly 1,000 points below Harvey's year-end target of 7,450, implying a potential 15% upside if the strategist's forecast proves accurate and significant war-related risks do not materialize. While acknowledging uncertainty regarding the Iran situation, Harvey recommended investors "begin putting money to work in a slow and methodical manner," naming stocks such as tech giants Google, Apple, Nvidia, and Palantir.

Harvey is not alone in seeing buy signals. JPMorgan's trading desk shifted its view on US equities from tactically bearish to neutral on Wednesday. Andrew Tyler, the firm's Global Market Intelligence Head, stated he is compiling a "shopping list." His team is taking long positions in energy stocks and mega-cap technology stocks. Keith Lerner, Chief Investment Officer and Chief Market Strategist at Truist, is encouraging clients to use the market dip to buy assets like large-cap stocks, while retaining some cash in case geopolitical tensions push prices lower. Lerner stated, "If you have cash, there's no need to wait for the perfect moment, as positive news can emerge suddenly, leaving you no time to react. If a true, broad-based sell-off occurs, that could present a more aggressive entry opportunity."

Investors may also find encouragement in what Barclays calls an "extremely consistent pattern" of stock market returns following geopolitical crises. For instance, Barclays analysts Ajay Rajadhyaksha and Amrut Nashier wrote in a Thursday note: the S&P 500 rose 2.5% in the three months following the 9/11 terrorist attacks in 2001; it jumped 13% after the start of the second Gulf War in 2003; and it has gained 60% since the onset of the Russia-Ukraine conflict. They stated, "The historical evidence is quite compelling." In the current environment, US stocks are supported by what analysts term a "non-cyclical investment cycle," encompassing AI-related capital expenditure and defense and energy-related spending. US corporate profits are projected to grow by 15% this year, the largest increase since the end of the COVID-19 pandemic. They added, "There is a 'wall of worry' ahead—but it is worth climbing."

Meanwhile, news from the Middle East conveyed conflicting signals. On Thursday morning, following Iran's rejection of a US-backed peace proposal, the US President threatened more intense military action. Later on Thursday afternoon, however, the President stated that negotiations were progressing "very well" and delayed a deadline for Iran to agree to a deal or face further attacks. According to Ohsung Kwon, Equity Strategist at Wells Fargo, this situation creates an "upside pain trade" for investors, who anticipate mega-cap tech companies and the Nasdaq 100 will significantly outperform the broader market. Truist's Lerner added, "As the market pulls back, the risk-reward ratio is improving," viewing the market retreat as an "entry fee" investors must pay to enter at attractive prices. He recommends preparing for a potential rally by slowly and cautiously increasing exposure to high-quality US mega-cap stocks. Lerner cautioned, "Investors need to stay alert—not try to be heroes."