Stock Market Outlook: Why This Pullback May Already Be Over

When the U.S. launched “Operation Epic Fury” – a high-intensity air campaign intended “to dismantle the Iranian regime’s security apparatus,” per U.S. Central Command – markets reacted instantly.

Oil surged. Volatility spiked. The S&P 500 broke below its 200-day moving average.

The narrative quickly followed: escalation risk, retaliation scenarios, the potential for a much broader conflict.

For a moment, it looked like the market was pricing in something much bigger than a single military operation.

But markets trade on outcomes, not headlines. And within days, the story started to shift.

Reports suggested back-channel communication had begun. Back-channel became front-channel. The geopolitical temperature dropped from ‘thermonuclear’ to ‘tense but manageable.’ Oil started to give back its war premium. 

And the S&P 500, after spending exactly two trading days below its 200-day moving average, retook the line on March 23 as if the market was beginning to price this as a contained event rather than an escalating conflict.

That kind of movement is what happens when a worst-case narrative starts getting repriced in real time. And there’s a clear playbook for how these moments tend to unfold.

The Market Is Following a Familiar Playbook

If you were in the markets back in April 2025, then this script will feel familiar.

That’s when President Trump’s “Liberation Day” tariffs sent markets into freefall – sending the S&P 500 down nearly 5% in two days and pushing the market toward a 10% correction within a week.

But that move didn’t stick.

The pause that came 90 days later was due to what financial analysts have dubbed TACO: Trump Always Chickens Out – a pattern where aggressive policy threats are used to force concessions, but ultimately get dialed back before causing lasting economic damage.

Markets, which had spent weeks pricing in a full-blown trade war, suddenly had to reprice an entirely different world. The S&P 500 ripped higher. AI stocks went parabolic. It was one of the fastest relief rallies in recent memory.

That sequence – sharp drawdown, policy reversal, violent relief rally – created a recognizable rhythm for investors.

The Iran situation is following the same playbook – at least so far.

The strike appears to have been designed to produce leverage rather than prolonged conflict. Maximum pressure. Maximum optics. Maximum negotiating leverage. Iran, despite its rhetoric, faces strong economic and strategic incentives to avoid prolonged escalation – including strained domestic conditions, limited export flexibility, and the risk of overwhelming military response. 

That suggests the TACO logic applies here too: when the cost of not blinking exceeds the cost of blinking, you blink. If that logic holds, Iran may ultimately choose de-escalation over escalation.

What De-Escalation Would Mean for Markets

If de-escalation continues – and early signals suggest that may be the direction – a plausible path forward looks like this: oil could retreat to the $65 to $70 range, the inflation pulse from the war premium would likely wash through the data within two to three months, and the Federal Reserve may find itself with the window it has been waiting for. 

Rate cuts resume. The economy exhales. And stocks – particularly the AI infrastructure complex that got caught in the geopolitical crossfire – move higher.

In prior TACO-style episodes, once the overhang lifts, capital tends to flow back into leadership. And right now, leadership has already been reset.

Big Tech has gone through a sentiment washout and valuation compression, even as its earnings outlook hasn’t materially changed.

That combination is rare – and we’ll break it down in our next issue.

This is where the weight of the evidence points right now.

Of course, that path depends on continued de-escalation – something that remains fluid and far from guaranteed. But based on current signals, we believe this is the most likely outcome here.

Now let’s look at what the charts are telling us.