Stock Alert: Breakout or Fake Out?

Let’s start with the current picture of the S&P 500 as of Tuesday’s close.

Notice how stocks have basically traded in a range of 7,300 to 7,600 for the better part of the last 3 months. The more a peace deal with Iran seemed realistic...the higher we would float in the range. And vice versa.

Once again, this week we are being told a peace deal is imminent leading to a breakout to new highs of 7,736 on Tuesday. Unfortunately one day above the range does not confirm that a breakout is absolutely in hand. So let’s discuss the divergent possible outcomes.

Breakout will be true IF peace deal with Iran holds with lower energy prices > lower inflation pressures > Fed less likely to raise rates.

Fake out will be true IF this is another false start on a peace deal leading to higher energy prices > higher inflation pressure > Fed more likely to raise rates.

If breakout then we should quickly run up to 8,000 which likely becomes stiff resistance for a while just based on the psychological factors that typically go hand in hand with each 1,000 points on the index.

That will likely not be the high for the year because corporate earnings have grown faster than previously expected and thus valuations are quite reasonable now with room to keep on rising.

But as shared with you guys many times before...there are much better valuations to be found in small and mid caps which comes through in this chart I have shared previously:   

You will note how historically smaller stock valuations (blue and green lines) usually converge with large caps (red) over time. And that is starting to happen now after large caps opened up a can of “whoop ass” on their smaller peers back in 2020 that kept getting wider and wider til about August 2025.

Meaning we were right to overweight smaller stocks starting last year and that continues to be the play going forward. I sense they will meet up somewhere in the 20 to 21 PE range a year or two down the road. 

Now let’s consider if the war with Iran stretches on much longer than expected. Yes, the first move will be to rescind this breakout and slide back into the previous range of 7,300 to 7,600.

The longer it goes on...the more time oil will spend above $80 putting more upward pressure on inflation...the more likely the Fed raises rates...the more it dampens the outlook for the economy and stock market.

This does not immediately mean bear market. It is all about the odds of recession. The higher those rise... the more the possibility of recession and bear market emerges.

We will not lose any sleep on that concept now as I think the odds are quite low on this front. That because, as shared in the past, there are much higher odds of a peace deal with Iran because of this chain reaction:

War with Iran > Higher Energy Prices > More Voters Angry @ Republicans > Not a Smart Idea Going into November 2026 Mid Term Elections

Thus, a peace deal and higher stock prices is the much, much more likely outcome. And that is what our portfolio is positioned for.

Gladly the discussion of the “fake out” scenario above has us prepared if things head the other direction.

What To Do Next?

Discover my Zen Investor portfolio that relies upon my greater than 40 years of investing experience. 

During that time I have learned vital lessons from 7 bear markets…8 bull markets and just about everything else the “Mr. Market” can throw at us. 

I use this knowledge to create a detailed investment plan. Then lean into our proven Zen Ratings quant model to select the best stocks given their proven outperformance. 

In total the Zen Investor portfolio now has 20 top stocks that are hand picked for today’s unique market landscape. 

And as shared above it is doing very well in 2026 as our portfolio is up +46.33% YTD far surpassing the benchmarks.  

Plus 2 new stocks were added this week that both have stellar upside potential. 

If you are curious to learn more, and want to see my current top 20 stocks, then please click the link below to get started now. 

Discover the Zen Investor & Top 20 Stocks >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)

Editor of the Zen Investor

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