Amid the escalating conflict in the Middle East, oil prices are capturing significant attention in financial markets. However, one strategist remains optimistic about the stock market’s performance this month. In a recent report, Tom Lee from Fundstrat expressed his expectation that despite the ongoing turmoil, March will end positively for stocks.
Since the outbreak of the US-Israel conflict with Iran on February 28, the S&P 500 has experienced a decline of over 1%. Yet, Lee pointed to a historical trend where stock markets tend to experience a rally once warfare begins. He referenced the saying, “sell the build-up, buy the war,” which has been observed in the context of the last eight major conflicts.
Lee highlighted that rising oil prices are a significant consequence of the current unrest, emphasizing that the US stands to gain from this increase. He noted that while higher oil costs generally impact economies negatively, the US has been a net oil exporter since 2020. This shift means that increased crude prices can positively affect the American economy, contrasting with the more significant hardships faced by countries in Europe and Asia due to disruptions in oil supply, particularly around key areas like the Strait of Hormuz.
While he anticipates that higher energy costs may slow global growth, Lee believes this will lead investors to favor growth stocks—an important factor since the S&P 500 is largely considered a growth-focused index. Despite the optimistic short-term outlook, Lee cautions that the market will face a more challenging environment in 2026, forecasting a trajectory of an initial stock rally followed by a downturn, ultimately leading to a robust finish for the year.
