The Middle East conflict cannot crush the bull market narrative! The search for bottoming fears is nearing the end, and the market is hopeful for a rebound in U.S. stocks.

As fighting in the Middle East continues and there are still no signs of easing, Wall Street traders are carefully studying technical indicator charts to gauge how much further the benchmark U.S. stock index—the S&P 500 Index—could fall. Technical analysts have pointed out that against the backdrop of sharply elevated volatility in the current stock market, early signs of bearish downside momentum have already emerged. The S&P 500 Index fell 0.2% on Tuesday, slipping further below its 50-day and 100-day moving averages. Breaking through these two key indicators reflects a clear bearish sentiment: the 50-day moving average more often reflects the short-term trend, while the 100-day moving average is viewed as a more medium-term trend gauge.

The next milestone closely watched by investors is the 200-day moving average of the S&P 500 Index, which is hovering around 6,591. This level implies a drop of about 5% from Tuesday’s intraday high.

Meanwhile, the latest view from Michael Wilson, chief equity strategist at Morgan Stanley, shows that he believes the impact of the current worsening Middle East geopolitical situation on U.S. stocks is similar to the tariff shock from “Liberation Day” driven by Trump a year ago—namely, it only brings a short-term pullback and mid-term choppiness to U.S. stocks. He said the U.S. stock market over the next month may still grind lower in a volatile manner, but he emphasized that after six months, the outlook will become clearer and bullish sentiment in the U.S. stock market could fully return.

U.S. and Iran’s ongoing hot war continues; Wall Street’s technical crowd is working hard to find the market bottom

Speaking about the market setup, David Wagner, head of equity at Aptus Capital Advisors and a portfolio manager, said, “This is often like the ‘engine warning light’ that investors can see.” “It indicates that current momentum is weaker than the historical average, and the narrative is shifting from bullish sentiment to caution.”

Although fundamental factors such as valuation can point well to a long-term optimistic bull market outlook, in periods when the market is under pressure, the demand for technical chart analysis tends to become stronger. As recent sharp volatility has enveloped Wall Street, the stock market reacts almost immediately to every piece of geopolitical news. Technical analysis disciplines may offer a relatively clear roadmap for traders looking for key support levels or major turning points.

In the view of Wall Street’s technical camp, the next key milestone investors need to watch is the S&P 500 Index’s 200-day moving average. The moving average is currently hovering near 6,591. Compared with Tuesday’s intraday high, this level is down by roughly 5%, and would imply that the index falls to its lowest level since the lows in November.

Technical chart observers often use the 200-day moving average to determine whether a stock’s long-term trend is moving up or down.

Ali Wald, head of technical analysis at Oppenheimer & Co, said that as long as the 200-day support line remains intact, the S&P 500 Index breaking below the 50-day moving average indicates that the index is experiencing a short-term pullback within a longer-term uptrend. In his view, this market setup may create major buying opportunities on dips in the short term.

But Wald said, “If it breaks below the 200-day moving average, that would be the first time since May last year that it has fallen through the 200-day average.” “That would show that the trend is gradually undergoing a deeper, structural change,” Wald said, adding that this level is worth watching.

Although the S&P 500 Index is still within 3% of the record all-time high reached in January, beneath the surface, trading in the stock market has been quite bumpy; before the United States began its military airstrikes against Iran, in coordination with Israel, the U.S. stock market had been largely range-bound and choppy for most of the year. Global stock markets have also largely been in this range-bound situation. Earlier this week, the Chicago Board Options Exchange Volatility Index (the VIX, or fear index) briefly surged to above 35, the highest level since the spring of 2025 when U.S. President Donald Trump kicked off the reciprocal tariff turmoil.

In the view of Matt Malley, chief market strategist at Miller Tabak + Co., the S&P 500 Index’s 100-day moving average—serving as a key support level since May 2025—has now turned into its key resistance level. The S&P 500 Index failed to close above that level on Tuesday, finishing at 6,781.48.

In Malley’s view, the 6,550 to 6,600 range represents a very critical market area. Malley said that if the market breaks below this range, it would give market watchers an important “lower low,” signaling a key change in the trend.

Morgan Stanley sticks to a U.S. bull-market stance: after the pullback, the bull market continues

Morgan Stanley’s chief equity market strategist Wilson said, “We remain positively bullish on the U.S. stock market over the next 6 to 12 months,” and maintained the “S&P 500 Index year-end target of 7,800.” Wilson’s core bullish thesis is based on a medium-term tilt to the upside, with the belief that in the short run, the market may continue to adjust rather than simply rally blindly.

From a purely short-term trading standpoint, the market is still in a “bottom-finding phase” triggered by the war in Iran and amplified by technical factors. Looking at the medium term, Morgan Stanley is more inclined to define it as a “rolling correction” that has already been going on for several months, rather than an end to the bull market.

The S&P 500 Index has broken below the 50-day and 100-day moving averages, and the technical crowd has started to treat the 200-day moving average as the next line of defense; however, Wilson from Morgan Stanley emphasized in his research report that this correction didn’t really begin in February of this year—it began in the autumn after liquidity was tightened, and it’s only that the latest Middle East war has made the previously latent pressure more explicit and more index-like.

Wilson said that the Iran war that has erupted recently is more like a “multiplier of market sentiment,” not the “underlying cause itself.” Before the fighting escalated, the market was already digesting major market issues dominated by fears of labor replacement under the “AI overturns everything” narrative, as well as risks of private credit defaults. The war and a surge in oil prices simply spread the pressure that had been concentrated in overvalued, crowded sectors to a broader level of index exposure.

Wilson’s latest assessment is especially critical: a truly meaningful stock-market correction often doesn’t come close to finishing until “the best stocks” and “the highest-quality indices” start to fall behind as well. Therefore, he believes it’s still too early to rush to buy the dip in the short term; the market may still struggle for another month. He also expects the S&P 500 Index to test around 6,300 points near early April. In other words, in Wilson’s view, the current market is closer to the latter half of a tactical de-risking process, rather than the starting point of a clean, decisive V-shaped reversal.

Based on the six-month fundamental repair logic, Wilson’s core market trajectory assumption indicates that this oil-price shock is more like a risk premium stemming from disrupted logistics in the Strait of Hormuz, rather than a persistent collapse in supply. If over the coming months the situation stabilizes gradually—similar to the early phase of the Russia-Ukraine conflict—then the U.S. stock market would return to a bull-market trajectory driven by earnings pricing, rather than being priced primarily by geopolitical risk. Key pillars supporting his medium-term bullish stance include: the ongoing trend of broad-based earnings growth in the market, the fact that the U.S. is more energy independent than Asia and Europe, and that incentives for capital expenditures tax treatment and tax cuts for residents can largely offset the shock from higher oil prices.