Ignoring Trump's disruption? Wall Street institutions stand firm on long positions: History shows a 60% probability of a rebound in U.S. stocks after turmoil.
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Despite the Trump administration’s threats to impose tariffs on European countries and Japan’s political instability impacting the global bond market, and even though U.S. stocks suffered their biggest drop since last October on Tuesday, Wall Street strategists believe that the foundation for a market rally remains solid, and that the current turbulence actually provides a buying opportunity.
The strategists’ optimism is mainly based on historical experience: Of 36 major geopolitical events since 1940, U.S. stocks rose in the following three months 60% of the time, unless the geopolitical situation caused oil prices to surge dramatically. Currently, both Brent and West Texas Intermediate crude prices are well below their long-term averages.
Corporate earnings expectations, continuing returns from AI-related trades, and an improvement in market breadth support the bullish outlook. Institutions like JPMorgan and Barclays advise investors to maintain long positions but recommend hedging against downside risk.
Geopolitical Turmoil Is Unlikely to Halt Stock Market Gains
Historical data shows that geopolitical risks usually have a limited impact on the stock market. HSBC’s emerging markets and equities strategist Alastair Pinder noted in a January 20 report that, unless geopolitical events cause a sharp spike in oil prices, the market generally absorbs such shocks.
Although crude oil prices have risen, both major benchmark oil prices remain well below their long-term averages, indicating that current geopolitical tension has not yet touched a key pain point for the stock market.
Chris Verrone, head of technical and macro strategy at Strategas Asset Management, said that last week about 70% of S&P 500 components were above their 200-day moving average, and the Russell 2000 and equally weighted S&P 500 indices reached historic highs. "This is not the backdrop we would expect to see ahead of a major top," he said. "Although sentiment is very one-sided and may trigger consolidation, we’re still following the long-term trend."
Earnings Growth Supports Valuations
Corporate earnings prospects are a main pillar of the bullish outlook. Analysts expect fourth-quarter corporate profits to grow by about 9%, with double-digit percentage increases expected for each quarter of 2026.
Bank of America data shows that in the first week of S&P 500 earnings reports, 73% of companies beat analyst expectations, compared to an average of 68% at this stage.
Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management, said: "If earnings season proves itself, then other factors should take a back seat."
Forecasters also expect tax cuts and real wage growth to boost the U.S. economy, while inflation will continue to fall—factors that are all favorable for stock market performance. AI-related trading continues to bring hefty returns to index heavyweights, and investor interest is rising across broader sectors such as healthcare, resources, and consumer goods.
Stay Long but Hedge Risks
Although bullish sentiment is dominant, strategists also acknowledge the need to handle volatility cautiously. The bull-bear ratio of the American Association of Individual Investors has reached its highest level since 2024, and surveys from the National Association of Active Investment Managers indicate that fund managers’ equity holdings are close to 96%.
Alexander Altmann, Barclays’ global equity tactical strategy head, told clients he is maintaining a risk-on position in the near term, even though volatility may increase, at least until earnings season ends. "The team remains constructive here, but of course acknowledges that with this level of initial momentum from the government, the volatility mechanism is shifting higher," he said.
JPMorgan’s trading desk raised a similar point on Tuesday. Andrew Tyler, head of global market intelligence, advised clients in a report to "stay long but hedge," maintaining a tactically bullish but cautious short-term stance.
Tyler said his team’s optimism is rooted in a resilient macro backdrop, positive earnings growth, and easing trade wars. "This framework is being tested now, but it’s too early to say that the macro story is deteriorating fast enough to turn bearish," he said. "We also believe it’s too early to abandon U.S. assets and think it’s better to hedge downside risk, especially if we see Trump pivot after Davos."
There’s also the possibility that Trump may "back down." After announcing reciprocal tariffs on April 2 last year, the president reversed his decision within a week following a market crash. Allianz Global Investors even suggested on Monday that European policymakers should encourage market turbulence to pressure Trump.
Risk Warning and DisclaimerThe market carries risks and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the individual investment objectives, financial situation, or needs of specific users. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investing based on this is at your own risk.
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