U.S. stocks have rebounded to record highs after the Iran war-driven selloff. There are signs suggesting the rally has further to run. Momentum indicators, including bullish options positioning and buying from volatility-linked funds, indicate continued momentum. Hedge fund buying and high-frequency trading firms are contributing to optimism.
Mark Hackett, chief market strategist at Nationwide, noted a reversal from overwhelming pessimism among institutional investors. Volatility-linked funds, which sold stocks in March, have turned net buyers, providing market support. Commodity trading advisors (CTAs) have bought about $20 billion in equities in the past week, while levered ETFs have purchased another $27.5 billion.
Historically, the S&P 500 tends to extend gains after recovering from 5% to 10% pullbacks. Since 1957, median returns two weeks after such recoveries have been 0.66%, increasing to 1.01% one month later. Despite this, some market conditions raise questions about sustainability, as noted by Steve Sosnick, chief strategist at Interactive Brokers.
