Reasons to Remain Bearish on US Stocks

After falling from its all-time high of 697.84 to 629.28, the SPY staged a violent rebound on March 31, 2026. Although this rebound was driven largely by signs of a potential de-escalation in the Middle East conflict, the market has actually been searching for reasons to call a bottom. But with bullish sentiment now released, can we truly be optimistic about the outlook?

Currently, the arguments for the market having entered a bottoming range generally fall into the following categories:

1. The SPY's forward P/E ratio has pulled back to around 20, making overall valuations more reasonable.
2. Long-term dollar depreciation pressures will drive inflationary price increases across all dollar-denominated assets.
3. This correction was primarily triggered by the Middle East war. As the conflict draws to a close or even ends, stocks should resume their upward trajectory.

However, while the above reasoning has some validity, it lacks necessary causal relationships.

First, the so-called pullback in forward P/E is based on the assumption that earnings remain unchanged. But in reality, even if the war ends, oil prices and supply are unlikely to return to pre-war levels anytime soon. Under such circumstances, companies' operating costs could face significant upward pressure. At the same time, if inflation begins to rear its head, demand will also be suppressed. Consequently, overall corporate earnings may need to be revised downward, making the judgment about a lower forward P/E far less reliable.

Second, the long-term trend of dollar depreciation implies an erosion of dollar credit. In this sense, so-called inflationary asset price increases… particularly nominal price rises driven by excessive money supply, are inherently unsustainable. Once the dollar's circulating supply exceeds a certain tipping point, the market will begin to question dollar credit, and dollar-denominated assets could become high-risk assets subject to selling. The fact that many central banks are increasing their gold holdings is already a clear warning sign.

Third, a ceasefire will not improve the federal government's balance sheet. On the contrary, it has deteriorated further due to massive wartime spending. When the federal government has to roll over old debt with new debt while interest burdens remain high, Treasury yields will likely stay elevated. In that case, the market will demand higher expected returns from risk assets, thereby suppressing equity valuations.

In summary, using historical data to predict market trends risks being an exercise in missing the point, while subjective judgments that ignore core fundamental variables resemble wishful thinking. Therefore, although multiple technical indicators suggest a rebound is needed, and the market has indeed used good news to satisfy that need, from a medium-to-long-term perspective, it is probably still too early to conclude that US stocks have bottomed.