By Martin Baccardax
Stocks are bumping their head on the ceiling of a soaring spring advance, and could be set for a drop over the coming weeks as oil prices remain elevated and inflation gauges show damage from the U.S. war with Iran.
The narrow nature of the rally, which saw five stocks -- Nvidia, Micron, Apple, AMD, and Intel -- drive nearly three-quarters of the S&P 500's 2.3% advance last week, is starting to worry some investors heading into Tuesday's April inflation reading and the continuing stalemate between Washington and Tehran.
The S&P 500 has powered nearly 13.5% higher since the start of April, and hit a fresh all-time high of 7412 points last night, while the Nasdaq extended its monthly gain to 5.5% with a record close on Monday.
Semiconductor stocks, meanwhile, are having their best year since 2009 in just four calendar months, with the PHLX benchmark rising more than 70% from the end of December and nearly 60% since the start of the second quarter.
But the tech-led nature of the gains, alongside the recent surge in global crude prices and the last of the major quarterly earnings reports due over the next two weeks, suggests stocks might be ready for a pullback heading into the final stretch of the second quarter.
"The market is overdue for a pause, and that wouldn't be a bad thing," said Mark Hackett, chief market strategist at Nationwide. "Even with higher oil prices, rising yields, and weak sentiment data, the market has remained resilient, which underscores how powerful the earnings and AI-driven momentum remains beneath the surface."
"But after a six-week rally and a sharp rebound off the March lows, some sideways churn would help cool expectations and rebuild a healthier foundation for the next move higher," he added.
The combined factors that powered the springtime rally, including a much stronger-than-expected first-quarter earnings, a slowdown in oil prices, and hopes for a lasting truce in the war with Iran, are all starting to fade.
Global crude prices crept higher again on Tuesday, with Brent contracts for July delivery rising another 3.3% to $107.50 a barrel, as peace talks between the U.S. and Iran remain "on life support," according to President Donald Trump.
Stocks, meanwhile, are set for a modestly weaker open, with the S&P 500 called 22 points lower and the Nasdaq priced for a 200 point decline.
That dichotomy of rising crude and soaring U.S. stocks, however, doesn't faze Jean Boivin, who heads BlackRock's Investment Institute.
"The AI buildout is offsetting the shock's drag on growth, while energy markets still appear to be pricing eventual reopening of the Strait or Hormuz," he said, adding that he's "pro-risk" for the moment, but watching moves in the U.S. Treasury market.
He notes, however, an important caveat: "this stance is dependent on eventual normalization in the Strait of Hormuz."
"A prolonged closure would likely shift the balance," he added. "It would lift inflation and rates enough to start weighing on valuations and tighten financial conditions, ultimately challenging both risk assets and the pace of the AI buildout."
But it's also worth noting that the S&P 500 is also trading at the highest levels to its 50-day moving average, a key barometer for investor sentiment, since August of 2022, according to Adam Turnquist, chief technical strategist at LPL Financial.
Broader market breadth, meanwhile, has weakened since the early-April boom, with megacap stocks powering the broader bull market trend. That is starting to worry investors over the likelihood of a near-term retreat.
"The strong recovery has pushed prices to elevated levels and signs of overbought conditions are emerging, suggesting stocks could be due for a near-term pause or pullback," he said.
Turnquist, however, sees this as second chance to enter into a longer bull market phase, "supported by a foundation of solid technical trends and underlying fundamental strength."
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 12, 2026 06:38 ET (10:38 GMT)
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