Panic ebb? US stocks show resilience in the war, investors are starting to believe "the worst moment has passed"

With Wall Street struggling to digest the impact of the Iran war, the U.S. stock market experienced a period of intense volatility. However, as the war entered its third week, various signs show that the worst may be over, and investors are becoming more optimistic about the stock market. Of course, concerns still exist. The closure of the Strait of Hormuz has pushed up oil prices, threatening inflation, reducing the possibility of a rate cut by the Federal Reserve, and increasing the risk of economic slowdown or even recession. Supply chains in multiple industries, from metals and raw materials to food and pharmaceuticals, are facing threats. In addition, concerns such as the impact of artificial intelligence, which suppressed market sentiment before the war, and the risk exposure of private credit, have not dissipated. However, even though there are no signs of easing tensions in the conflict, investment experts seem to have learned to coexist with geopolitical uncertainties. The S&P 500 index rose 1.3% this week, marking the best two-day performance since the U.S. airstrikes were launched in the Middle East, dropping only 3.8% from its historical high in January. Meanwhile, options traders are gradually unwinding some of their bearish bets, and the recent decline in investors' stock exposures may indicate that the market is bottoming out. "The question is: why aren't they panicking?" said Sam Stovall, Chief Investment Strategist at CFRA. He pointed out that the current decline is still below the threshold for a correction, "I believe that, in many ways, the market's resilience is encouraging to investors, and the continued improvement in profit growth expectations is a deep-seated reason supporting the market bottom." Earlier this month, the cost of options on the SPDR S&P 500 ETF, which hedges against a 5% drop, relative to the cost of hedging an equivalent gain reached a year-long high, but this premium level is gradually falling. The calm trend of the Chicago Board Options Exchange Volatility Index (VIX) is evident. The index touched 35 on March 9, signaling an escalation in market anxiety, but has since gradually declined, closing near 22 on Tuesday. Barclays derivatives strategist noted that the demand for options betting on a jump in VIX is weak, and the outflow of funds from exchange-traded products betting on VIX suggests that investors are not panicking. Noah Weisberg, Chief Strategist at BCA Research, said that despite intensified market volatility, the decline in the S&P 500 is "relatively mild." A larger decline is still possible, but a rebound of only 5% or so would be a positive signal. In early trading in New York, S&P 500 index futures rose by 0.5%. If the index falls 5% from its recent high this weekend, the retracement process will take more than 47 days. Data from CFRA shows that since World War II, the S&P 500 index has never entered a bear market after a 5% retracement lasting more than 40 days. The passage of time may also play a role in the improvement of market sentiment. Samir Samana, Global Equity and Real Assets Head at Wells Fargo Investment Research Institute, believes that the escalation of geopolitical uncertainty on Wall Street is "nothing new," and the only change is the "epicenter" of the conflict. Intense selling is often brief in history unless a significant portion of the global economy is collapsing, so investors are better off "diversifying their allocations" rather than trying to evade new individual conflicts. As for when the S&P 500 could reach new highs, Stovall of CFRA said that any potential sign of conflict resolution could ignite the market. "If we see at least negotiations taking place, that's obviously a sign that hostilities are ending and dragging down oil prices, which I think would be a trigger," he said. "Even the prospects for negotiations I think would go a long way in sparking a market recovery and attempting to reach new highs in history." Samana, on the other hand, is looking for a more specific initial catalyst, namely the reopening of the Strait of Hormuz. If the strait is quickly unblocked, the market will look for the next signal; but if the blockade persists, it may pressure investors. "If the strait reopens, we might enter into a range-bound phase until other uncertainties become clear," Samana said. "If the strait remains closed for months, the likelihood of a sharp increase in oil prices could lead the S&P 500 to break below the key support level of the 200-day moving average, at which point retail investors may cut their losses and exit."