Buying Before the All-Clear
In challenging markets, one of the costliest mistakes investors make is waiting for absolute certainty before committing capital. By the time the path forward feels obvious, most of the opportunity has already been captured by those willing to move while uncertainty still lingered. The market's bottom on March 30th illustrates this principle vividly. Investors who stepped in before it became clear that the worst of the Middle East situation had passed were rewarded, while those demanding a definitive resolution missed the early leg of the rebound.
History supports this pattern: stocks tend to bottom before conflicts actually end. Markets look ahead and recognize that while the path to peace is rarely linear or perfect, the worst has likely been priced in. That framework applies to the current environment. Nasty headlines will continue, and the S&P 500 may experience some backing and filling along the way, but the lows appear to be behind us.
The key insight here is that markets don't trade on absolutes of "good" or "bad." They trade on the direction of change—"better" or "worse." Compared to the period when active bombing was underway just weeks ago, the current landscape is materially improved, even if it is far from tranquil.
Earnings Momentum Takes the Wheel
As the market moves past its peak geopolitical stress, the dominant driver is shifting from headlines back to fundamentals. A month ago, geopolitics was the prime force pushing equities around. Today, earnings momentum is reclaiming that role.
The fundamental picture is remarkable. Twelve-month forward earnings growth for the S&P 500 has been revised upward to 25%. For context, the twenty-year average for that metric sits around 7.5%. Earnings are growing roughly three times faster than their long-term norm, and analysts continue to revise estimates higher rather than lower. A meaningful portion of that upward revision trail is being driven by AI infrastructure names in the technology sector, along with industrials and materials.
With roughly ten percent of companies having reported so far, the setup suggests another strong earnings season ahead. Guidance may be somewhat muted due to ongoing tensions with Iran, but that is expected and should unwind as the situation resolves. The core story is that the fundamentals are quietly reasserting themselves after months in which geopolitics drowned them out.
Where the Real Opportunity Lives
The most compelling setup this quarter sits in technology, and the reasoning is almost paradoxical. Tech valuations have been hit hard, with the sector now trading around 23 times earnings after peaking near 30 times last fall. Yet this is precisely where the best earnings growth is occurring. That combination—reset valuations plus the strongest fundamental momentum in the market—is the classic profile of asymmetric opportunity.
AI infrastructure is the natural focal point. This includes hyperscalers such as Microsoft, Meta, Google, and Amazon. Apple, while less of a direct AI play at the moment, remains attractive. Semiconductors deserve particular attention given the fundamental tailwinds still building there.
The contrast with other strong-earnings sectors is instructive. Industrials companies like RTX and GE have posted excellent numbers, yet their stocks have sold off on the news. The explanation is valuation: industrials are trading relatively rich and remain near peak multiples, so even strong prints fail to surprise. Tech, having undergone a deeper reset, has more room to respond positively to good news. Being where both the growth and the cheaper relative pricing coexist is the textbook opportunity, and it is sitting in plain sight.
The Contrarian Rate Cut Call
A central pillar of the bullish thesis rests on the Federal Reserve easing later this year—a view that currently runs against consensus. The CME FedWatch tool shows the market pricing only about a one-in-three chance of a rate cut this year, and recent Congressional testimony from Kevin Warsh did nothing to signal otherwise.
That silence, however, may be more tactical than substantive. It is widely known that the president wants rate cuts, and if Warsh had openly signaled dovishness in front of Congress, he would have handed opponents the "sock puppet" narrative they were looking for. Reading too much into what he did or did not say in that setting would be a mistake. Warsh's underlying disposition is demonstrably more dovish than his predecessor's.
The base case runs through a clean sequence: the war winds down, energy prices cool, inflation risk recedes, and the Fed gains room to cut—likely just once this year. Being out of consensus on macro calls is uncomfortable, but it is also where the real money tends to be made when the call proves correct.
The Risk That Matters Most
No bullish case is complete without acknowledging its primary vulnerability. For the AI infrastructure trade specifically, the single biggest risk is if the Strait of Hormuz remains blocked for an extended period. Eventually, prolonged disruption there would ripple into semiconductor production in Asia, since those manufacturing economies are far more dependent on Strait-sourced energy than either Europe or the United States.
That dependency is a critical and underappreciated linkage. The chips that power the AI buildout rely on fabs that in turn rely on uninterrupted energy flows through a specific geopolitical chokepoint. Resolving that situation is not optional for the bullish scenario to play out, but the base case assumes it does get resolved.
Putting It Together
The current environment rewards investors who are willing to act while conditions are still noisy rather than wait for headlines to turn universally positive. Earnings are growing at roughly three times their historical pace. Tech has absorbed a valuation reset that leaves it offering the best growth at the most reasonable prices in the market. The Fed is more likely to ease than consensus suggests, especially once energy-related inflation pressures subside. Geopolitics, while still a factor, is no longer the prime driver it was a month ago.
The path forward will not be smooth, and more volatility should be expected. But for investors with the discipline to look through near-term noise, the fundamental setup argues for staying engaged rather than sidelined through year-end.