Key insights
- The article suggests the recent 7% pullback in VOO is a buying opportunity, driven by strong expected S&P 500 earnings growth in 2026 and 2027. It acknowledges geopolitical risks and inflation concerns but anticipates a positive market reaction if the conflict resolves and oil prices stabilize. The author believes that corporate earnings will ultimately drive long-term performance.
As of March 30, the Vanguard S&P 500 ETF (VOO +0.11%) was down 7% from its all-time high. It's due to the first significant fall for the S&P 500 in roughly a year.
This type of pullback may be uncomfortable, but it's not unusual. Pullbacks of at least 5% typically happen on average about once a year. In a sense, we're right on schedule. But it's how investors react to this that will be the difference between a temporary road bump and something more damaging.
Several factors at play make me feel like this current pullback is more opportunity than warning.
While short-term performance and volatility can be driven by any number of factors, long-term performance is usually a product of corporate earnings growth. When earnings are growing, stock prices have justification to go higher.
That's exactly what we're seeing now. Despite concerns about inflation, the labor market, and economic weakness, S&P 500 earnings are expected to grow 17% in 2026 and another 17% in 2027.
With valuations contracting in the early part of this year, a double-digit earnings growth story provides a powerful backdrop.
The war is the biggest factor that's triggered stock market volatility this year. It's sent oil prices significantly higher, raised inflation expectations, and taken the odds of a Fed rate cut this year almost completely off the table.
But there are signs that the conflict might be nearing a conclusion. The stock market has already responded as if it's a likelihood at this point. If a resolution is reached and the Strait of Hormuz reopens, investors are likely to react positively.