U.S. stocks surge on the final day of March, with analysts bluntly stating "this rebound is not worth trusting"

U.S. stocks rebounded strongly on the last trading day of March, but analysts warn that this rally may not be worth chasing.

On Tuesday, buoyed by reports that the Trump administration might seek to end the U.S.-Iran military conflict, the Dow Jones Industrial Average surged 1,125 points, up 2.49%; the Nasdaq Composite soared 3.83%; and the S&P 500 Index increased 2.91%. Technology stocks and the communication services sector were the main drivers of this rally. However, this upward move occurred amid extreme market volatility—In March, Brent crude futures rose by 63.3% in a single month, the largest monthly gain since records began in 1988, with international oil prices closing at $118.35 per barrel.

Garrett Melson, a portfolio strategist at Natixis Investment Managers Solutions, bluntly stated: “I think this rebound is not really worth believing in.” He also pointed out that month-end and quarter-end points tend to amplify market fluctuations. Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, said: “Today’s market perfectly illustrates this highly volatile environment—everything can reverse in an instant.”

Signals of Easing Tensions in Iran, but Uncertainty Remains

The immediate catalyst for this rebound was multiple reports suggesting that the U.S.-Iran conflict might de-escalate.

According to Xinhua News Agency, Trump is considering halting military strikes against Iran, even though the Strait of Hormuz remains under Tehran’s control. Meanwhile, Iranian President Ebrahim Raisi stated that Iran has the “necessary willingness” to end the war, provided the other side meets Iran’s demands, especially guarantees of non-aggression.

However, Gordon pointed out that there is still a serious lack of accurate information about the extent of damage to Middle Eastern energy infrastructure, and future security measures remain unclear. Melson added that even if Trump manages to find an “exit route” from the conflict, there is no guarantee that oil prices will fall quickly: “We are racing against the ‘oil shock clock.’”

Market Anxiety Shifts from Inflation to Growth

The bond market’s movements reveal a subtle shift in investor sentiment.

On Tuesday, the yield on the 10-year U.S. Treasury fell to 4.310%, below the 4.439% high reached last Friday, the highest since 2026. In the approximately $30 trillion Treasury market, funds are shifting from “inflation concerns” to “growth worries.”

Melson said: “The market is turning the page, shifting from inflation fears to concerns about economic growth.” He noted that during the first four weeks of the conflict, fears that the Federal Reserve might be forced to raise interest rates due to inflation pressures kept the market on edge. Now, the historic surge in oil prices poses a real threat to the economy. He warned that if gasoline prices stay at $4 per gallon or higher, or if higher oil prices begin to erode corporate profit margins, Wall Street will have to revise its current cautious outlook.

Valuation Improvement, but Earnings Expectations Have Not Yet Been Lowered

The stock market experienced a significant correction in March. Aside from the S&P 500 barely avoiding a technical bear market (defined as a decline of at least 10% from recent highs), the other three major indices all entered correction territory within the month. Recently, Wells Fargo Securities and JPMorgan Chase also lowered their year-end target prices for the S&P 500.

FactSet senior earnings analyst John Butters showed that as of last Friday, the forward 12-month P/E ratio of the S&P 500 had fallen from 22 times in December to 19.9 times, easing valuation pressures. Meanwhile, driven by improved earnings expectations in the energy sector, overall profit growth forecasts for Q1 were slightly raised to 13%, up from 12.8% the previous week.

However, Melson pointed out that the current valuation improvement is based on the premise that Wall Street has not yet substantially lowered earnings forecasts—an outlook consistent with the Fed’s cautious stance. Once the impact of high oil prices on corporate profits begins to materialize, this premise will be put to the test.