The global financial landscape has been fixated on the Iran war in recent days.
While the strikes that killed Tehran’s supreme leader and the nation’s subsequent “retaliation” were broadly expected to hurt stock prices, markets have actually shown a surprising level of resilience.
Despite this apparent stability, however, investors remain in a state of purgatory, waiting for a clear indication that the geopolitical risk has been fully digested.
And according to experts, there’s one specific technical milestone – a line in the sand that will signal the bulls have officially reclaimed control.
Why have US stocks remained resilient?
The aforementioned resilience stems from a market that’s arguably “under-owned” – characterized by a sentiment that Fundstrat technical strategist Mark Newton describes as “quite subdued despite the lack of capitulation.”
According to him, investor are looking past immediate kinetic conflict and looking into underlying economic fundamentals, which have remained sturdier than expected.
“To market’s credit, it’s been able to weather an amazing amount of bad news while not breaking down,” Newton wrote in a recent brief.
The market’s ability to absorb shocks, from energy price spikes to retaliatory strikes, without breaching its yearly lows suggests that the “wall of worry” is being climbed rather than hit.
Furthermore, domestic production in the US has acted as a buffer against the traditional “oil shock” narrative that typically accompanies Middle Eastern instability – enabling US stocks to “decouple” from the worst-case geopolitical scenarios.
What would be a clear buying signal for US stocks?
For the benchmark S&P 500 index to climb fully out of the woods, the specific signal traders must watch for is a decisive break above Monday’s intraday high of 6,901, according to Mark Newton.
On Wednesday, the index challenged this level with a high of 6,885.94 – but ultimately lacked the momentum to punch through.
If SPX can climb “above this past Monday’s highs, I think it’s right to think that lows are in place for the time being,” Newton wrote.
It’s a psychological barrier that proves buyers are willing to commit capital even amid a war. Until this “Monday ceiling” is shattered, the market remains in a state of suspended animation.
Newton further cautioned that the S&P 500 is currently “trapped in the tightest range ever experienced,” meaning the eventual breakout – whichever way it goes – is likely to be explosive.
What to expect from S&P 500 moving forward?
Newton further argued that this tight trading range will be “resolved sometime in March.”
For the average investor, the message is clear: the “Iran war discount” will only be fully removed once SPX proves it can trade at the price levels seen before the week’s most intense escalations.
Until 6,901 is in the rearview mirror, the market is merely treading water.
A successful breach of that level won’t just silence the skeptics but would confirm that, for Wall Street at least, the conflict has moved from a market-moving crisis to a background noise variable.
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