Market Thoughts: Off-ramps... you talkin' to me?

Markets have bought into a narrative that the White House is looking to end the war with Iran. I hope that proves the case. Hope springs eternal. Maybe the U.S. ‘declares victory’ and exits. Maybe not. There’s a chance we see escalation to de-escalate. Wars are ‘easy’ to start. They’re hard to end.

As I say every time I put pen to paper and politics creep into a narrative: read nothing into my observations as political. I’ve spent a lot of time the past few weeks hearing from geopolitical and military experts, not to mention policy insiders. None can clearly define what a ‘clean’ exit looks like. That said, nothing precludes the White House from declaring one.

Most observations land on something I’ve said before. The U.S. and Israel continue to have different end goals around regime change. If Israel can’t effect it they may ‘settle’ for further fracturing the Iranian regime.

Iran views the current threat existentially. Victory is survival, there’s no alternative. The regime’s shown an ability to absorb greater pain than the U.S. seems willing to suffer economically or politically. Time, for now, appears on Iran’s side. Current negotiation between the U.S. and Iran is more than substantive. I start this missive with that as backdrop to markets.

The ‘wisdom of crowds’ can be right. Consensus forms and becomes self-reinforcing. As it relates to markets, I question it regularly. Something that proves wrong can go on far longer than it rationally should. Think of any market bubble. Parenthetically, we’re not in a bubble.

There are moments where market technicals redefine fundamentals. Or at the very least the narrative. George Soros termed it reflexivity. Technical momentum eventually overwhelming fundamentals. The concept originally came from the MIT economist Rudi Dornbusch. I learned to lean into and embrace it, investing in emerging markets early in my career.

We may be seeing a reflexive bump beginning to circle. We’ll only know in hindsight. The longer war drags on—and it appears two of the three central players want it to—the inflation bite and slow retreat of investor confidence builds. That creates gap risk for markets. Up and down.

Most of the volatile price action we’ve seen, while dizzying, has been driven by hedging or trimming risk positions. Hope for the best, begin to plan for something bad turning worse. The nature of markets is to be forward-looking. In general, more bullish than bearish… until things go wrong.

That positive proclivity is allowing equity markets to bounce about, not yet break. Also, for credit markets to remain stable. Tripwires to watch are 10-year Treasury yields breaking above 4.5-4.75% and Brent oil above $120-130. So far, not enough of the negative pressure—in particular from inflation—has pushed investors to meaningfully challenge the constructive macro landscape.

Equity market multiples have come down from highs. We’ve lost about two turns on S&P 500 one- and two-year forward valuation levels. We’re hovering around 20x and 17x, respectively. Those are digestible, even for nervous nellies.

They’re grounded on earnings forecasts that effectively have only seen upward revisions. Most equity strategists continue to pencil in low double-digit earnings growth this year and next. For now, we do as well. As we approach first-quarter earnings season, acute attention’s going to be paid to ‘prophets’ and their forecasts. Also, what C-suite execs are saying about the outlook.

Yesterday’s macro and market forecasts will quickly become just that if Washington can’t work its way to a ceasefire. And it holds. Animal spirits keep trying to push risk assets higher, fundamentals arguing for it. I appreciate, for now, the cautiously constructive outlook. But confidence is wavering.

To borrow a fortune cookie proverb my daughter gifted me years ago, patience is the key to joy. Indeed it is. It’s unfortunate investors rarely prove patient for long. We’re in a headline hustling world, especially around sentiment. Trade carefully.

We don’t know the second derivative for how this plays out. It is what it is. We’re already seeing core inflation press higher. Headline will follow. Then a growth slowdown, followed by lowered earnings revisions. Central banks are on hold. Some may have to hike. Bond markets remain volatile and pressured, risk assets jumpy.

Investors want to believe the spin of a fast-approaching end to the conflict. I hope it’s not improvisation. If things escalate, markets may eventually riot. That might pivot policy, pressing the White House to reflexively find an off-ramp.

“You talkin’ to me?” was a line delivered by Robert De Niro as Travis Bickle, in the film Taxi Driver. He’s looking in a mirror, talking to himself. A ‘fun fact’ about that line? It was improvised. The script simply read: “Travis looks in the mirror.” Off-ramps… you talkin’ to me?

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 3/26/26

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