What a difference a few weeks can make!
Markets surged to record highs this week, capping three straight weeks of gains as fears of a prolonged energy shock faded and investors refocused on encouraging fundamentals.
The NASDAQ jumped 6.84%, while the S&P 500 rose roughly 4.30% during the week, pushing its rebound from late March lows to more than 12%. This rally has been fast, even by historical standards, with one of the quickest recoveries to new highs following a near correction.
The positive performance has been driven by a clear narrative shift: suddenly, the impossible became possible. A ceasefire in the Middle East, along with signs that the Strait of Hormuz is reopening, helped drive oil prices sharply lower from their recent peak. At the same time, Treasury yields stabilized, and early earnings results came in better than expected. The result is a market that has rapidly priced out worst-case outcomes and is once again leaning into growth.
Still, the speed of the move raises a fair question. When markets sprint this quickly, they often need to catch their breath. It’s far too early to forecast S&P 8,000, but the market seems to have made up its mind for now. Given the market’s resilience and momentum during bull runs over the past few years, it isn’t wise to fade this rally.
SourceL Warren Pies via Daily Chartbook
Five factors behind the rebound
Several forces have come together to fuel this sharp recovery, and most point to a market that is regaining confidence in the underlying economic backdrop.
- The biggest shift was in expectations. Investors have largely moved away from the fear of a prolonged oil shock. The ceasefire is holding, and progress toward reopening key shipping routes continues. This kind of incremental progress is what the market is focused on as evidence that the biggest downside risk is removed.
- Oil and bond yields have both become less of a headwind. Crude prices have fallen roughly 30% from their peak, and the 10-year Treasury yield has settled into a more stable range. This combination has eased pressure on both consumers and valuations.
- Consumers are holding up better than expected. Higher tax refunds are helping offset the hit from elevated fuel costs, providing a meaningful cushion for spending in the near term.
- Corporate profits remain a critical support. First quarter earnings are tracking toward nearly 12% growth, marking a sixth straight quarter of double-digit gains. Strength in technology, including continued demand tied to artificial intelligence, is playing a major role.
- Positioning has flipped. Defensive trades put on during the height of the energy shock are now being unwound, adding fuel to the rally as investors move back into risk assets.
Together, these factors explain why markets have not just stabilized but surged.
Fat earnings, skinny leadership
While the headline move has been impressive, the details under the surface matter. Much of the recent strength has been driven by large-cap growth stocks, particularly in technology and semiconductors. Market leadership remains concentrated, but as news remains positive, breadth could continue to improve.
Overall, the earnings backdrop is hard to ignore. Early reports from major banks point to healthy consumer and steady business activity, reinforcing the idea that the economy entered this period of volatility on a solid enough footing. Sectors less exposed to energy costs are leading earnings growth, helping offset pressure in more cyclical areas.
Source: Liz Ann Sonders
Overall, the earnings backdrop is hard to ignore. Early reports from major banks point to healthy consumer and steady business activity, reinforcing the idea that the economy entered this period of volatility on a solid enough footing. Unlike much of 2025, non-Mag 7 companies are putting up the better numbers. Additionally, sectors less exposed to energy costs are leading earnings growth, helping offset pressure in more cyclical areas.
Source: FactSet via Daily Chartbook
Fundamentals are still holding up, but there are enough warts to make everyone a little unhappy. I’m fine with a little worry anyway, because I still want to do more buying.
What this means for investors and what’s next
The near-term setup points to a lot of pausing. A pause in market momentum, a pause in interest rate changes, and thankfully, a pause in Middle East threats.
After such a rapid change in conditions leading to this market rally, some consolidation will be healthy. Too much exuberance will worsen overbought conditions while market breadth is still playing catch-up. Investors should watch whether leadership broadens beyond mega-cap technology before making big bets on another 12% rally. A slower pace will be key to sustaining gains.
Looking ahead, the path of geopolitical progress remains critical. Continued cooperation that can lead to a durable resolution would support rising valuations the globe over, and in the U.S. specifically, a further rotation into cyclicals. Small- and mid-cap stocks and international markets are waiting in the wings for their chance to shine.
Forward guidance this earnings season will take center stage, offering a clearer view into how companies plan to manage costs and demand. Stellar results aren’t going to be enough to warrant a price pop if the guidance is too cautious or too vague.
For investors, selective opportunities may be worth pouncing on. The overwhelming unknowns of a prolonged energy shock or escalating military engagements appear to have passed. The market has shown impressive resilience, and fundamentals remain supportive. Staying diversified, avoiding the urge to chase short-term moves, and using periods of volatility to rebalance or add decisively remains the most effective strategy as this recovery continues to unfold.
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Related: Markets Rally on Fragile Peace as Inflation Roars Back