Don't call it a comeback: 3 reasons why stocks have clawed back Iran-war losses

US equities have rebounded sharply, with the S&P 500 up 9% and the Nasdaq 100 up 11% since late March, fully erasing Iran-war and year-to-date losses. The rally is being driven by expectations of a peace deal, broad upward revisions to earnings forecasts, and a reset in valuations after the selloff. Investors are now focused on late-April earnings from Alphabet, Microsoft, Meta, and Apple, with AI capex spending likely to determine whether tech's momentum extends or reverses.

Analysis

The market is repricing a narrow but powerful regime: geopolitical risk is being treated as headline noise while earnings revisions are becoming the dominant factor for index direction. That favors the most duration-sensitive parts of the market first—mega-cap software/platforms and semis—because small multiple changes on higher and more visible forward growth have the biggest index-level impact. The less obvious second-order effect is that a lower forward multiple does not automatically mean safer entry points; it can also be a signal that the market is leaning harder into a perfect-execution setup heading into earnings, which raises gap-risk rather than reducing it.

The key setup into late April is not just whether the big four report “good” numbers, but whether capex trajectories on AI remain manageable relative to accelerating revenue assumptions. If management teams defend spend while investors are already stretched on the demand side, the market can quickly shift from rewarding AI investment to punishing free-cash-flow dilution. That creates a bifurcation: names with clearer monetization and operating leverage should continue to outperform, while firms where AI spend looks like a cost center rather than a growth bridge are vulnerable to multiple compression.

Consensus is probably underestimating how quickly the tape can unwind if one of the mega-caps disappoints, because passive and options positioning have both concentrated around the same handful of winners. The rally has improved breadth psychologically, but technically it still depends on a small set of earnings anchors; that makes the next two weeks a volatility event, not a clean confirmation of a new bull leg. Conversely, if earnings merely meet raised forecasts and capex commentary is disciplined, the market may force another round of de-risking into under-owned tech as investors chase performance.

The contrarian view is that the move is neither fully overdone nor fully durable: valuation has reset enough to support further upside, but sentiment has healed faster than fundamental visibility. That argues for owning quality growth with hard catalysts while fading weaker AI stories and avoiding unhedged upside bets into earnings. The asymmetry is better expressed through options than cash equity because the next leg is more likely to be driven by single-name gaps than by a smooth index drift.

Key Decisions for Investors

• Buy GOOGL/MSFT call spreads into earnings over the next 2-3 weeks; focus on upside participation if capex commentary is disciplined, with risk limited to premium paid.
• Hedge concentrated mega-cap exposure with short-dated NASDAQ 100 downside puts into the last week of April; the risk/reward favors protection against a single earnings miss causing a fast de-rating.
• Pair long GOOGL or MSFT vs short a basket of lower-quality AI beneficiaries for 1-2 months; the trade benefits if the market rewards monetization over spending intensity.
• Take tactical profits on crowded momentum longs ahead of earnings if implied volatility remains elevated; the setup favors gap risk more than linear upside from current levels.
• If AAPL reports soft capex/China commentary but holds margins, use any post-earnings dip to add on a 1-3 month horizon; its lower AI intensity makes it a relative defensive within mega-cap tech.