Another V-shaped rally – What the data says now

Key takeaways

Markets have staged a historic rally from the March lows as investors have reduced the probability of a drawn-out conflict and persistently high oil prices. As we have noted in the past, when markets begin to sniff out a peak in uncertainty – even before a situation is fully resolved – rallies are often sharp and difficult to time.

Importantly, this rebound is occurring after what our work suggested was a healthy reset, though not full capitulation, in prices, sentiment, and valuations.

That said, the U.S.-Iran situation remains unresolved, and there is always the risk of re-escalation. After so much “fuel” has been used on the rebound, it would be reasonable to expect a period of consolidation or a pullback that gives back some of the recent gains.

However, the weight of the evidence continues to suggest that the bull market deserves the benefit of the doubt, and we would view weakness as an opportunity.

• The technology sector, as we had been highlighting, moved to its lowest valuations since 2023 and has since recovered sharply. AI is once again moving back to the forefront as a defining theme of this bull market. While the sector appears extended over the very short term, upside potential remains following the sharpest contraction in valuations seen this decade.
• Several areas we expected to recover strongly, including small caps and emerging markets, still appear to offer attractive upside potential.
• With earnings season just getting underway, profits, which remain the bull market’s north star, along with oil prices are key near-term factors to watch.

In today’s note, we highlight key charts and statistics that provide perspective on the recent rally and reinforce our outlook.

Summary of key charts and statistics guiding our views

• The rally from the lows has been broad-based and led by growth. Technology gained 20%, and communication services rose 19%. Energy was the only sector down during the rebound but remains the strongest sector year to date, with a gain of 23%.
• Prior to the rebound, the S&P 500’s peak-to-trough decline of 9.1% was close to the typical average drawdown of ~10.1% since 2009 (and less than what is often seen in election years).
• Once stocks have found a low, the market has historically rallied an average of 19.1% (15.9% median) before the next 5% pullback.
• A 12-out-of-13-day winning streak has historically been followed by solid, though not exceptional, returns. Since 1950, there have been 16 prior instances of similar streaks.
  • One month later, results have been mixed, with stocks higher 56% of the time and an average gain of 0.7%. One year later, the market was higher 81% of the time, with an average gain of ~9%, in line with longer-term historical norms.
  • Notably, the last comparable streaks occurred in 2013 and 1995, both periods squarely within bull markets that went on to deliver mid-teen gains over the following year.
• Although the S&P 500 has rallied sharply from the March 30 lows and appears “too far, too fast” in the short term, zooming out shows the index is only ~3% above its late-October high, or over roughly the past five and a half months, suggesting less of an extreme move in a broader context.
• Following the breakout to new all-time highs, we see initial price support near 7,000, with more significant support in the 6,700–6,800 range, where the rising 50-day and 200-day moving averages are converging.
• Despite the recent pullback, S&P 500 earnings continue to make fresh highs. Earnings strength remains broad-based, with large-, mid-, and small-cap earnings at fresh cycle highs.
• The peak-to-trough decline in the technology sector’s forward P/E of 37% marks the deepest valuation contraction of this decade, exceeding declines seen during COVID, the 2022 bear market, and the 2025 tariff shock.
• At the same time, technology’s forward earnings estimates remain leadership and have been revised higher by 18% over just the past three months, approximately double the pace of the S&P 500.
• Small caps continue to hold up well, despite macro uncertainty, with absolute prices near record highs and relative performance remaining firm.
• We recently upgraded energy following a pullback, and this should offer a partial hedge against renewed geopolitical flare-ups and our more cyclical tilts, such as technology, industrials, and materials.
• Emerging markets pulled back to their breakout levels and rebounded – a positive technical development.

As always, we will continue to follow the weight of the evidence, keep an open mind, and update you as our views evolve.