Investors are not able to get enough stock these days.
The war in the Middle East, the largest energy shock in history and concerns about artificial intelligence have done nothing to dampen their enthusiasm. Major indices are back at records. American companies are completing a tremendous earnings season. Wall Street is piling up.
Institutional investors own 50% more stocks than their benchmarks, according to Bank of America’s latest survey of global fund managers, the highest figure since January 2022. They are particularly bullish about stocks that would benefit from a resurgence in economic growth, with holdings of so-called cyclical stocks outweighing defensive stocks that investors buy for relative stability by the largest amount since 2018.
The Dow Jones Industrial Average set its first record since February and ended Friday at an all-time high around 50580. The S&P 500 gained for an eighth consecutive week, its longest such streak since December 2023.
“All the ingredients for this rally are in place,” said David Bahnsen, chief investment officer of Bahnsen Group.
Underscoring the good feelings: hopes for a peace deal in the Middle East conflict and an earnings season that has eased concerns that profits won’t keep up with stock gains. According to FactSet, companies in the S&P 500 reported a 28% increase in first-quarter profits, looking at both actual earnings and expected results from the roughly 5% of companies in the index that have not yet reported earnings.
Chip makers remain at the center of the rally after rising earnings. Samsung gained another 8.1% this week, taking its gains to 144% in 2026. Intel rose 10% and is now up 225%. The PHLX Semiconductor Index rose 5.3% this week.
But some of the week’s gains came in more speculative sectors. The Trump administration’s plan to give $9 billion in grants to quantum-computing companies in exchange for equity stakes sent IBM up 16% for the week. Shares of GlobalFoundries, another company working on specialized chips for quantum computing, rose about 21%.
The prospect of a huge SpaceX public offering has raised excitement for some aerospace companies. AST Spacemobile rose 27% and Virgin Galactic rose 15% this week, while Rocket Lab shares rose 8.8%.
Reasons for caution abound. Some people think that the nervousness over the AI boom that has plagued markets from time to time this year has disappeared.
Many worry that rising energy prices and supply disruptions from the war in the Middle East could fuel inflation and harm the broader U.S. economy. While Brent crude futures slipped to about $103.50 this week, they remain up 70% this year.
Walmart recently warned that consumers stressed by high fuel prices are filling their tanks at an average of less than 10 gallons per trip at its gas stations for the first time since 2022. Shares in the retailer fell 8.5% this week.
TJ Maxx-parent TJX posted its biggest one-day gain in nearly two years on Wednesday after reporting a surge in first-quarter sales driven by inflation-weary consumers who shopped for deals on branded goods.
The rebound in inflation has also created a crisis in the bond market.
Yields on government bonds largely reflect what investors expect to average over the interest rates set by the Federal Reserve over the lifetime of a given bond. They have been rising for several weeks as investors gave up hopes of a rate cut later this year, with minutes from the central bank’s most recent meeting showing that officials are beginning to consider raising rates instead. Fund managers have the lowest weightage in bonds since 2022, according to a BofA survey.
Because Treasury yields set the cost of borrowing for everything from mortgages to student loans, their rise could slow growth. Rising yields also increase the appeal of bonds’ stable returns compared to riskier stocks.
Some analysts also worry that investors have become too excited, a sign that a selloff may be on the way. BofA analysts wrote in a recent note that fund managers’ cash levels saw the biggest monthly decline since 2024, a level they see as a signal to sell stocks.
Not everyone is feeling well. The war and inflation helped push consumer sentiment to an all-time low, according to a monthly University of Michigan survey released Friday.
Bullishness among individual investors — measured by the percentage they expect stock prices to rise over the next six months — fell to 31.7% in the week ending Thursday, according to the latest survey from the American Association of Individual Investors.
But many see general investor caution as a sign that the rally may continue. And a surge in corporate profits has pushed shares well below their historical price levels. According to FactSet, companies in the S&P 500 recently traded at 21 times their expected earnings over the next 12 months, down from a high of 22.6 times earlier this year, but still above the 10-year average of 18.9.
“I would be more worried if everyone was overly optimistic,” said Larry Adam, chief investment officer at Raymond James. “When everyone goes to the same side of the ship, that’s when you have a problem.”
Write to Krystal Hur at krystal.hur@wsj.com
