Summary
U.S. stock indexes have reclaimed record territory after an earlier pullback linked to the U.S.-Iran conflict. Several underlying indicators point toward continued upside momentum: aggressive bullish options flows, buying from commodity trading advisors (CTAs) and levered exchange-traded funds, and a reset of institutional positioning following widespread caution. At the same time, elevated energy prices and geopolitical uncertainty persist, creating a backdrop of risk even as technical and positioning signals favor further gains.
Market momentum and positioning
The S&P 500 has experienced a strong advance over the past two weeks, a move that some strategists say can feed on itself. "We’ve seen a really strong upward thrust for the S&P 500 over the last two weeks," Sonu Varghese, global macro strategist at Carson Group, said. "Momentum begets momentum, and new highs are a sign of momentum," Varghese added.
Part of the renewed optimism stems from a shift in institutional behavior. Mark Hackett, chief market strategist at Nationwide, noted that initial widespread pessimism and conservative positioning among institutional investors has partially reversed. That reallocation has coincided with buying from a range of market participants, providing support to equity prices even while geopolitical tensions and higher energy costs linger.
Flows from volatility-linked funds and systematic managers
Volatility-focused funds, which had been net sellers as markets grew choppy in March amid the conflict, have rotated back into net buyers, offering incremental demand for equities. Nomura estimates roughly $20 billion of equities were purchased by CTAs in the past week alone, making them a notable source of fresh demand. In addition, Nomura places buying from levered ETFs at about $27.5 billion over the same one-week period.
Joanna Wang, Nomura's cross-asset and equity derivatives strategist, described systematic positioning in U.S. equities as still historically light. "Systematic positioning in U.S. equities still remains historically light - there is still room to rebuild before it becomes a source of instability," Wang said, implying that additional rebuilding in this segment could sustain buying flows.
Beyond systematic and volatility-driven flows, discretionary demand may also rise with the market's advance. Todd Morgan, chairman of Bel Air Investment Advisors, observed that approaching new highs can attract more buyers who prefer not to miss further upside. "When they see the market go up and approach new highs, they buy more because of the fear of missing out," Morgan said.
Options markets and the chase for upside
While index levels stand roughly where they were in late January, options positioning and sentiment have shifted markedly. Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group, pointed to a dramatic reset in March that left investors underweight the market heading into April. That underownership is helping to explain recent aggressive demand for bullish options, as participants chase returns.
One metric that illustrates this shift is three-month 25-delta call skew normalized by at-the-money volatility. That measure has swung from being the most defensive in nearly three years to the most bullish in three months within a three-week span, reflecting a rapid increase in the premium investors are willing to pay for upside exposure.
Garrett DeSimone, head quantitative analyst at OptionMetrics, framed this behavior in the context of geopolitical events. "Historically, geopolitical conflicts have had sharp but short-lived effects on equity markets," DeSimone said. He added that the normalization of equity implied volatility and skew even as the underlying conflict persists is consistent with markets shifting toward pricing resolution.
Corporate signals and idiosyncratic moves
Investor enthusiasm can also be seen at the single-name level. Shares of Allbirds surged more than five-fold on Wednesday after the footwear company announced a capital raise and a pivot toward AI computing infrastructure. That move underscores the degree to which event-driven news can amplify market gains in individual stocks, contributing to overall risk-on sentiment.
What history shows
Historical patterns add context to the present advance. A Reuters analysis of LSEG data going back to 1957 found that when the S&P 500 recorded a fresh high after recovering from a pullback of 5% to 10%, the index has typically extended those gains in the following weeks. Two weeks after such recoveries the S&P 500 has posted a median return of 0.66%, widening to 1.01% one month later. These forward returns are broadly in line with median returns for similar periods since 1957, suggesting that new highs have often been followed by further gains rather than immediate stalls.
Examining individual occurrences, in roughly two-thirds of 38 instances where the S&P 500 rose above a recent recovery threshold following a 5%-9.9% pullback, stocks were higher two weeks and one month later. In the one-third of cases where markets faltered, the subsequent retreats were relatively limited, with median declines of 1.46% at the two-week mark and 3.38% at one month. Notably, in the dataset, stocks never fell back below the recent low within two weeks to a month after the recovery.
Outstanding contradictions and cautionary notes
Despite the positive technical and positioning signals, some market outcomes remain difficult to reconcile with contemporaneous macro and commodity moves. Steve Sosnick, chief strategist at Interactive Brokers, posed a rhetorical question that captures the disconnect: "If I told you at the end of February that by mid-April oil futures would be $30 higher, bond yields would be about 35 basis points higher, expectations for two rate cuts would evaporate, and consumer sentiment would be at record lows, would you have reasonably expected major equity indices to be flirting with all-time highs by the end of that timespan?"
He concluded with a wry observation about the market's behavior under momentum regimes: "I’m pretty sure that’s a ’no,’ ... (but) when momentum rules, fundamentals are optional," Sosnick said. That comment highlights a core tension: the technical drivers and positioning that have propelled the rally can coexist with macro and sentiment metrics that typically argue for greater caution.
Implications for investors
The present market configuration suggests two forces at work. On one hand, positioning and flows - from options buyers to CTAs and levered ETF purchasers - are providing tangible support for higher prices. On the other hand, macro variables such as elevated energy prices, rising yields and weak consumer sentiment represent real uncertainties that could alter the path of risk assets if they intensify or if investor perception shifts.
For now, the technical and positioning evidence points toward continued momentum, but the coexistence of sizeable macro and geopolitical risks means that the rally carries an elevated degree of uncertainty.