2026: A Whirlwind on Wall Street
Thus far, 2026 has been a whirlwind for Wall Street investors. First, stocks cascaded lower amid the US-Iran conflict in the Middle East. Meanwhile, crude oil prices amid turmoil at the Strait of Hormuz (where roughly 20% of the world’s oil supply traffics). Despite the concerns, Wall Street did what it often does best – climb the proverbial Wall of Worry. By early April, US investors began ignoring the geopolitical headlines and began to refocus on the underlying economy which is being driven the AI buildout.
What Should Investors Be Watching?
Summer Seasonality
After a relentless rally from early April to late May, stocks have seemingly returned to their volatile ways. Seasonality and simple profit taking may be playing a key role. Often, institutional investors (who manage the majority of capital on Wall Street) take off on vacation during the summer, leading to an illiquid and volatile market environment. Additionally, investors often take chips off the table ahead of the mid-term elections.
Image Source: Carson Investment Research, FactSet
Markets Don’t Top in June
On the flip side, the good news for investors is that markets rarely top in June. In fact, over the past 50 years, no S&P 500 bear market has ever begun in June.
QQQ Retreats to the 10-week Moving Average
After a raging multi-week rally, the Nasdaq 100 Index ETF (QQQ) finally retreated to the 10-week moving average. Seasoned investors understand that when an index gets extended from a moving average, it tends to snap back to it in a rubber band like fashion. Nevertheless, the first retreat to the 10-week moving average after a correction is historically extremely favorable to bulls.
Image Source: TradingView
Market Participation Broadens
SpaceX (SPCX), the largest IPO in history, could be causing some short-term liquidity issues for other stocks. Meanwhile, “Mag 7” stocks like Microsoft (MSFT) and Alphabet (GOOGL) have lagged recently. Nevertheless, the S&P 500 Equal Weight ETF (RSP) and the Russell 2000 Index ETF (IWM) have outperformed recently, suggesting that the market is in a rotational period, not an all-out selling stage.
Sentiment Remains Sour
Despite the massive gains in the market, most investors remain skeptical. In fact, the latest AAII Sentiment Survey has more bears than bulls – a bullish contrarian indicator.
Image Source: AAII
Bottom Line
Markets are currently digesting massive first half gains. That said, several market indicators suggest that the volatility and selling will be temporary.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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