Wall Street Says Stocks Are Too Cheap to Ignore as War Rages On

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(Bloomberg) — The war in Iran may be showing few signs of easing, but Wall Street strategists are encouraging investors to start buying stocks again.

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This month’s pullbacks in the S&P 500 and Nasdaq 100 indexes have sapped investor sentiment as hostilities in the Middle East push oil prices higher and raise inflation fears. Still, stock market strategists at Barclays Plc, CIBC Capital Markets and Truist Advisory Services Inc. are advising clients to look past the near-term risks, citing attractive valuations, solid profit estimates, optimism over artificial intelligence technology and a history of market rebounds after geopolitical shocks. 

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Their views offer a dose of confidence to traders watching the S&P 500 head for its fifth consecutive down week, having shed almost 6% since the war in Iran started. Sentiment indicators, which usually offer contrarian signals, are hovering near depressed levels. And the index is valued at 19.5 times earnings over the next 12 months, in line with its average over the past decade.

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“Overall, it’s a walk not run type situation with equities but the starter’s pistol has gone off,” Christopher Harvey, head of equity and portfolio strategy at CIBC Capital Markets, wrote in a research note Thursday.

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Equity bears were in control on Thursday, as the S&P 500 fell 1.7% to 6,477.16 in its worst day since January. The Cboe Volatility Index jumped above 27 amid skepticism that the US and Iran will reach a ceasefire any time soon. A gauge of expected price swings in the Nasdaq 100 hovered near 30. 

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The rout pushed the S&P 500 almost 1,000 points below Harvey’s year-end target of 7,450, indicating a 15% upside if the strategist is correct and the biggest war-related risks fail to materialize. While acknowledging Iran-related uncertainty, Harvey advised investors to “start putting money to work in a slow and methodical fashion,” pointing to stocks such as technology giants Alphabet Inc., Apple Inc., Nvidia Corp. and Palantir Technologies Inc.

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Harvey isn’t the only one seeing buy signals. JPMorgan Chase & Co.’s trading desk flipped its US equity view to neutral from tactically bearish on Wednesday, with Andrew Tyler, the firm’s head of global market intelligence, saying he’s building a “shopping list.” His team is long energy and mega-cap technology stocks. 

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At Truist Advisory Services Inc., Keith Lerner is encouraging clients to use pullbacks to buy large-cap stocks, among others, while keeping some cash on the sidelines in case geopolitical tensions push stocks even lower.

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“If you have cash, you don’t want to necessarily just wait for the perfect opportunity because it could be something that comes from a headline that you just aren’t going to be able to react to in time,” said Lerner, the firm’s chief investment officer and chief market strategist. “There might be an opportunity to be more aggressive if we get a true flush.”

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Read: Trump Extends Energy-Attack Ceasefire, Claiming Iran Request

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Investors may also be encouraged by what Barclays Plc called a “remarkably consistent pattern” of positive stock market returns following geopolitical crises.