Key Points
Market volatility is making investors edgy, but 5% drawdowns in the S&P 500 happen around once a year.
If the macro story isn't changing, these pullbacks can offer up enticing buy-low opportunities.
There are two catalysts for a rebound: Double-digit earnings growth is expected, and the Iran conflict could end soon.
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As of March 30, the Vanguard S&P 500 ETF (NYSEMKT: VOO) 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.
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Several factors at play make me feel like this current pullback is more opportunity than warning.
Image source: Getty Images.
Key takeaways
- Pullbacks of 5%-10% in the S&P 500 are common and happen around once a year.
- S&P 500 earnings are expected to grow 13% year over year in the first quarter of 2026. If it happens, it would be the 6th consecutive quarter of double-digit growth.
- Signs of a near-term resolution to the Iran War could add a bullish catalyst for stocks.
- The S&P 500 is trading at a forward price/earnings (P/E) multiple of 19 for the first time in a year.
The earnings story is getting better
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.
An end to the Iran War?
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.
The Vanguard S&P 500 ETF at a glance
| Metric | VOO (Vanguard S&P 500 ETF) |
|---|---|
| Expense ratio | 0.03% |
| 10-year annualized return | 14.1% |
| 5-year annualized return | 12% |
| YTD 2026 return | (4.4%) |
| Forward price/earnings (P/E) | 22.3x |
| Holdings | Approx. 500 large-cap U.S. stocks |
| Best use case | Long-term core U.S. equity exposure |
Data source: Vanguard, as of 3/31/26.
The catalysts that support buying the Vanguard S&P 500 ETF are:
- Strong earnings growth over the next two years or more
- An imminent end to the Iran War
- Lowest price/earnings ratio in roughly a year
The current volatility that the market is experiencing is making a lot of investors uncomfortable. But it also presents a unique buying opportunity.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
