Good morning investors,
The weekend brought fresh complications. The US seized an Iranian-flagged cargo ship in the Gulf of Oman, firing on it and blowing a hole in its engine room. Iran declined to join another round of peace talks in Pakistan. The two-week ceasefire expires tomorrow.
Crude has surged on the news. WTI has jumped 6% to above $88 per barrel. Brent has advanced 6% to above $95.
After thirteen consecutive days of gains on the Nasdaq and three straight weeks of 3%+ returns on the S&P 500, a pullback was due. The question is not whether we consolidate here, but whether the consolidation holds above previous highs.
Opening Bell
Futures are lower this morning as the market digests these developments. Dow ($DIA ( ▼ 0.03% )) futures have dropped 298 points or 0.6%. S&P 500 ($SPY ( ▼ 0.23% )) futures have lost 0.5%. Nasdaq 100 ($QQQ ( ▼ 0.65% )) futures are down 0.5%.
The Iran conflict continues to be defined by start-and-stop diplomacy that seems to adhere to a strict weekend schedule. Bad news arrives on Saturdays and Sundays. More hopeful headlines come during trading hours. The pattern suggests the administration is paying attention to market reactions.
Trump threatened to destroy all power plants and bridges in Iran if Tehran does not agree to a deal. Iran has declared that the US "did not fulfill their obligations," and vessel traffic through the Strait of Hormuz was restricted again by Saturday despite earlier declarations that it had reopened.
This week brings a packed earnings calendar against a relatively calm economic data backdrop. Retail sales on Tuesday and University of Michigan sentiment on Friday will provide reads on the consumer eight weeks into the conflict. Tesla reports Wednesday. Intel, which traded to its highest intraday price since 2000 on Friday, reports Thursday. Airlines report throughout the week to show how soaring jet fuel prices are affecting the industry.
What Last Week Accomplished
Before focusing on today's complications, let us acknowledge what happened.
The S&P 500 closed Friday up 1.2% for a weekly gain of 4.5%. The Nasdaq finished up 1.5% for a 6.8% weekly return. The Dow rose 1.8% on Friday, more than 850 points, for a 3.2% weekly gain.
The Nasdaq strung together 13 consecutive winning sessions, the longest streak since January 1992. The tech ETF XLK matched it with 13 straight days higher. The software ETF IGV posted its best week since October 2001.
From the March 30 lows, the S&P 500 is up 13% in just 14 trading days. That is not a slow grind. That is a rocket ship.
The S&P 500 has now posted three consecutive weeks with at least a 3% gain. That has only happened two other times in 76 years, and both preceded extraordinary rallies.
The Historical Context Is Remarkable
The current bull market is up 99.2% from its October 2022 lows. Looking at the seven bull markets that made it to 100%, they lasted another three years on average with a median of 1.8 years. Yes, things peaked soon after 100% was hit in 1980, 2007, and the post-COVID rally, but the others lasted much longer (Per Ryan Detrick, CMT).
The S&P 500 making a new high in April has historically been extraordinarily bullish. In the 19 prior instances, the full year was positive 18 times with an average gain of 18.8%. A seven-day winning streak has produced similar results: higher 19 out of 20 times with an average annual gain of 18.8%.
The S&P 500 is having its third-best April in history, up 9% with over a week left in the month. The last two times we saw this were 2009 and 2020. Both were recovery rallies off major lows, just for perspective. The full year gains that followed were 28% and 29% (Per Phil Rosen).
The Retail Investor Has Changed the Game
I have written numerous times about how retail traders have fundamentally changed market dynamics. The experienced investor's traditional reaction to pullbacks was to hedge, raise cash, and rotate to safe havens like gold. The new generation of investors has the buy-the-dip mentality burned into their DNA.
The people driving these moves have only ever seen V-shaped rallies since 2008. They have no reason to doubt that pattern will continue. This has led to quicker moves to the downside but much quicker recoveries, with shorts getting trapped as the market turns on them rapidly.
Retail's favorite stocks are outperforming mutual fund favorites by 11 percentage points so far in April. This puts retail on track for their best relative month since November 2020 after five consecutive months of underperformance. The basket of stocks most favored by retail investors has rallied 22% since late March. The Meme Stock ETF has surged 56% since March 31, on track for its best monthly performance since its October 2025 inception.
The market just experienced an unusually powerful short squeeze. Positioning had become extremely bearish at the end of March, with systematic and quantitative funds heavily short. The ceasefire headline forced a rapid unwind of those positions. The rally in the S&P 500 and Nasdaq is one of the most remarkable index short squeezes I have seen.
Earnings Are Validating the Move
The first quarter earnings season is off to a strong start, both in absolute terms and relative to expectations.
With roughly 10% of S&P 500 companies having reported, the blended earnings growth rate stands at 13.2% year over year. If maintained, this would mark the sixth consecutive quarter of double-digit earnings growth. Revenue growth is robust at 9.9% year over year, the highest level since Q3 2022, suggesting this is not purely margin-driven growth but supported by genuine top-line expansion.
From a surprise perspective, the quality of earnings has been notable. 88% of companies have beaten EPS estimates, well above both five-year and ten-year averages. Revenue beats are also elevated at 84%. Earnings are coming in 10.8% above estimates on average, while revenues are 2.0% ahead.
Information Technology is the clear standout with earnings growth of 45.1%, driven heavily by semiconductors. Materials and Financials are also contributing meaningfully at 21.6% and 19.7% respectively. The Magnificent Seven are expected to deliver earnings growth of 22.8% compared to 10.1% for the rest of the index.
TSMC's blowout results Thursday validated the AI infrastructure story. Year-over-year increases in adjusted EPS and revenue of 66% and 40% respectively. The company raised full-year revenue growth guidance to over 30%.
My Assessment: Time to Consolidate
The shift from rapidly oversold to overbought means the market likely needs to consolidate at these levels and potentially pull back to previous highs before the next move higher. Let the market hold these levels. Let earnings come through and drive the next leg.
This morning's slight pullback is healthy, not concerning. The market cannot go up 13% in 14 trading days without pausing to digest those gains. A retest of the 7,000 level on the S&P 500 would be entirely normal and would set up a stronger foundation for the continuation higher.
The stock market is in a better position today than it was at the January highs. We have individual companies trading at market-average P/E ratios while their earnings are expected to grow massively again this year. Much of technology fits this profile. The market withstood another massive test, surviving calls that oil was headed to $200 and a global recession was imminent.
Stop Trying to Predict Every Headline
The average investor should stop trying to predict every geopolitical headline and instead focus on price action, technical levels, and risk management.
Most of the news flow around the US, Iran, and the Strait of Hormuz is noise rather than actionable information. In my view, only a few developments truly matter: the initial move into conflict, the announcement of a ceasefire, and whatever comes next, meaning either an extension, a breakdown, or a peace deal. Everything else is short-term headline volatility that can distract investors and lead to poor decisions.
This weekend's ship seizure is dramatic but likely falls into the noise category. Both sides continue to negotiate. Both sides have economic incentives to resolve this. The pattern of brinkmanship followed by de-escalation has repeated throughout this conflict.
Market Conditions Are Stabilizing
Several technical indicators suggest the environment is improving.
Top-of-book depth in S&P 500 futures jumped to $10.8 million last week, the highest since January. This marks a 440% increase from the approximately $2.0 million low recorded in March. The current reading is higher than 84.6% of all observations over the last two years.
ETFs accounted for approximately 28% of total volume last week, in line with historical averages, after exceeding 40% for most of March. Falling ETF trading volumes are typically associated with calmer markets and greater investor confidence in individual stock selection.
Final Thought
I continue to be bullish on the rest of the year and maintain my price targets from the start of the year. I expect the S&P 500 to finish 2026 up approximately 10%.
The direction of rates remains a potential headwind, but I believe oil will impact core inflation less than is being predicted. The Fed will be able to cut rates at the end of the year if the conflict resolves and energy prices normalize.
Today's pullback is an opportunity to assess whether your portfolio is positioned correctly for the next leg higher. The companies driving AI infrastructure, cloud computing, and digital transformation have not changed. Only the short-term headlines have.
The process works. Stay disciplined.
As always, feel free to reach out with questions about navigating this environment.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.