Stock Market Bulls Strengthen as S&P 500 Reaches Record Highs Amid Renewed Investor Optimism
NEW YORK – U.S. stocks have surged to record highs following a selloff driven by the Iran conflict, with indicators suggesting that this rally may have further potential. Despite ongoing tensions in the U.S.-Iran situation and persistent high energy prices, the market’s significant recovery has sparked discussions about potential market overvaluation. However, various signals, including bullish options positioning and increased buying from volatility-linked funds, indicate that the upward momentum could persist.
Sonu Varghese, global macro strategist at Carson Group, noted the strong upward movement of the S&P 500 over the past two weeks, emphasizing that “momentum begets momentum, and new highs are a sign of momentum.” The optimism is further bolstered by increased buying activity from hedge funds and high-frequency trading firms.
Mark Hackett, chief market strategist at Nationwide, highlighted a shift from previous pessimism and conservative positioning among institutional investors, which has begun to reverse. Volatility-linked funds, which had sold off stocks in March amid market turbulence, have transitioned to net buyers, providing additional support. Commodity trading advisors (CTAs) have led this charge, purchasing approximately $20 billion in equities over the past week, according to Nomura. Leveraged exchange-traded funds (ETFs) have also contributed, acquiring an estimated $27.5 billion during the same period.
Joanna Wang, a cross-asset and equity derivatives strategist at Nomura, pointed out that systematic positioning in U.S. equities remains historically light, suggesting there is still room for rebuilding before it could lead to instability. The new highs may attract more discretionary buyers, as Todd Morgan, chairman of Bel Air Investment Advisors, explained that investors often buy more when they see the market approaching new highs due to the fear of missing out.
In a notable display of investor enthusiasm, shares of Allbirds surged more than five-fold after the footwear company announced plans to raise capital and pivot towards an AI computing infrastructure.
Chasing Upside in Options
While index prices have remained relatively stable since late January, market positioning and sentiment have shifted significantly. Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group, remarked on the dramatic reset in positioning that occurred in March, noting that investors entered April underexposed to the market. This has led to aggressive bullish options flows, resulting in a sharp increase in call skew, which measures the premium investors pay for upside bets. The three-month 25 delta call skew has shifted from being the most defensive in nearly three years to the most bullish in just three weeks.
Garrett DeSimone, head quantitative analyst at OptionMetrics, stated that historically, geopolitical conflicts have had sharp but short-lived impacts on equity markets. He noted that the normalization of equity implied volatility and skew is consistent with the market’s shift towards pricing resolution, even as the underlying conflict continues.
No Bull Trap Here
Historical trends appear to favor stock bulls. According to an analysis of LSEG data, since 1957, when the S&P 500 has reached a new record after recovering from a pullback of 5% to 10%, it has typically extended those gains over the following two weeks to one month. Specifically, two weeks after such a recovery, the S&P 500 has shown a median return of 0.66%, with gains increasing to 1.01% one month later. This suggests that stocks have historically built on momentum rather than stalling at new highs.
For investors concerned about a potential bull trap—where a declining asset appears to reverse higher, attracting buyers only to resume its downward trend—the historical data offers reassurance. In approximately two-thirds of the 38 instances when the S&P 500 overcame a 5%-9.9% pullback, stocks were higher two weeks and one month later. Even in the one-third of cases where stocks faltered, the declines were relatively modest, with median drops of 1.46% and 3.38% at the two-week and one-month marks, respectively. Notably, stocks have never fallen back below the recent low within two weeks to a month of recovery.
However, despite the supportive data, some aspects of the market remain perplexing. Steve Sosnick, chief strategist at Interactive Brokers, posed a rhetorical question about the market’s current state, noting that if one had predicted in late February that by mid-April oil futures would be $30 higher, bond yields would rise by about 35 basis points, and consumer sentiment would be at record lows, it would be hard to expect major equity indices to be nearing all-time highs. He concluded that when momentum drives the market, fundamentals may become secondary.
Source: www.zawya.com
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Published on 2026-04-17 08:31:00 • By the Editorial Desk
