Yardeni says next two trading days will test his call that the market bottom is in

The S&P 500 is about 9.1% below its Jan. 27 record and Yardeni says that retreat likely marked the market low; large-cap valuation has fallen from 23x to roughly 19x as earnings rose ~12.7%. Yardeni cites historical precedent (S&P gains of 31–44% two years after past major U.S. military engagements), solid breadth and record margins supporting a bullish view, but warns near-term risk from renewed saber-rattling by President Trump and says the next two days could make or break the call.

Analysis

Geopolitical headlines create asymmetric, short-dated flow dynamics: headline spikes force cross-asset de-risking (USD up, DM rates and quality credit bid, EM and cyclicals sold) which then creates temporary liquidity vacuums that amplify intraday moves. That amplification benefits instruments with convex payoffs (short-dated put protection, volatility) and sectors with re-priced political risk-premia (aerospace/defense, energy, marine insurance).

Over a multi-month horizon the deciding anchors will be commodity reaction and rate path. A persistent move higher in oil and shipping insurance costs would mechanically pressure margins for global trade-exposed industrials and accelerate pass-through inflation, forcing central banks to re-evaluate easing windows — a regime that favours commodity producers and real assets while penalizing highly levered cyclicals. Conversely, quick diplomatic de-escalation tends to flush crowded safe-haven trades and rebalance flows back into high quality growth, creating mean-reversion in vol and a tailwind for long-duration equities.

Tactically, the best payoff structures are asymmetric: pay small premia for large downside insurance while owning optionality into a geopolitical-driven rerating (defense/energy). Net-long equity exposure should be sized to survive headline whipsaws (layering buys 3–6 weeks apart) and accompanied by explicit, capped-cost hedges rather than broad delta hedges that can be blown out by a single violent headline move.

Key Decisions for Investors

• Long aerospace/defense convexity: Buy ITA (iShares U.S. Aerospace & Defense ETF) 6-month 15% OTM call spread sized 1.5% NAV. Rationale: asymmetric upside if risk-premia reprice; capped max loss = premium, target payoff 3–4x premium if defense names rerate within 3–9 months.
• Tail hedge for headline risk: Buy a 3-month SPX 5%/10% OTM put spread sized 0.75–1.25% NAV. Rationale: caps cost while paying off materially on an 8–12% index drawdown; max loss = premium, payoff improves non-linearly during high-IV spikes.
• Accumulation via lower-cost entry: Sell a 1-month cash-secured SPY put at ~5% OTM (roll monthly) to collect premium and accumulate long S&P exposure if assigned. Size to target notional exposure of 2–4% NAV per put; risk = assignment at strike, reward = premium + lower entry in sideways-to-up scenarios.
• Commodity/energy hedge: Buy XLE 6-month 10% OTM call spread sized 1% NAV, funded by selling a near-term call (calendar financed). Rationale: protects vs oil-driven inflation/regime change; capped loss = net premium, target payoff 2–3x if energy spikes within 3–6 months.