Investors just can’t get enough of stocks these days.
War in the Middle East, the largest energy shock in history and worries about artificial intelligence have done little to cool their ardor. Major indexes are back at records. U.S. corporations are wrapping up a blockbuster earnings season. Wall Street is piling in.
Institutional investors are holding 50% more in stocks than their benchmarks, the highest figure since January 2022, according to Bank of America’s latest survey of global fund managers. They are particularly enthusiastic about stocks that would benefit from a reacceleration in economic growth, with holdings of so-called cyclical stocks exceeding those of defensive shares that investors buy for relative stability by the largest amount since 2018.
The Dow Jones Industrial Average just notched its first record since February and finished Friday at an all-time high around 50580. The S&P 500 wrapped up an eighth-consecutive week of gains, its longest such streak since December 2023.
“All of the ingredients of this rally have held in there,” said David Bahnsen, chief investment officer of the Bahnsen Group.
Underpinning the good vibes: 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. Companies in the S&P 500 have reported a jump of 28% in first-quarter profits, looking at both actual earnings and expected results from the roughly 5% of companies in the index that haven’t yet reported earnings, according to FactSet.
Chip makers remain at the core of the rally, after an earnings-fueled surge. Samsung gained a further 8.1% this week, bringing its 2026 climb to 144%. Intel rose 10% and is now up 225% on the year. The PHLX Semiconductor Index gained 5.3% this week.
But some of the week’s gains came in more speculative areas. The Trump administration’s plan to award $9 billion in grants to quantum-computing companies—in exchange for equity stakes—drove IBM up 16% for the week. Shares of GlobalFoundries, another company working on specialized chips for quantum computing, rose roughly 21%.
The prospect of the massive SpaceX public offering boosted enthusiasm for some aerospace companies. AST SpaceMobile gained 27% this week and Virgin Galactic jumped 15%, while shares of Rocket Lab rose 8.8%.
Reasons for caution abound. Few think the jitters around the AI boom that have periodically hit markets this year have disappeared.
Many worry that rising energy prices and supply constraints from war in the Middle East could lift inflation and hurt the broader U.S. economy. While Brent crude futures slipped to around $103.50 this week, they remain up 70% this year.
Walmart recently warned that consumers are stressed from higher fuel prices and are filling their tanks with an average of fewer than 10 gallons per trip at its gas stations for the first time since 2022. Shares of the retailer lost 8.5% this week.
T.J. Maxx-parent TJX notched its biggest one-day gain in almost two years Wednesday after reporting first-quarter sales boosted by inflation-weary consumers shopping for deals on branded goods.
Inflation’s rebound has also sparked woes in the bond market.
Yields on government bonds largely reflect what investors expect interest rates set by the Federal Reserve to average over the life of a given bond. They have climbed for weeks as investors surrendered hopes for rate cuts 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 are underweight bonds by the most since 2022, according to the BofA survey.
Because Treasury yields set borrowing costs for everything from mortgages to student loans, their climb could slow growth. Rising yields also increase the appeal of bonds’ stable returns relative to riskier stocks.
Some analysts also worry that investors have grown too enthusiastic, a signal that a selloff could be on the horizon. BofA analysts wrote in a recent note that fund managers’ cash levels saw their biggest monthly drop since 2024, to a level they view as a sign to sell shares.
Not everyone is feeling good. The war and inflation helped push consumer sentiment to a new all-time low, according to the University of Michigan’s monthly survey released Friday.
Bullishness among individual investors—measured by the percentage who expect stock prices to rise over the next six months—fell to 31.7% in the week ended Thursday, according to the latest survey from the American Association of Individual Investors.
But many view caution among ordinary investors as a sign the rally can keep going. And the surge in corporate profits has also brought stocks down from their historically pricey levels. 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, according to FactSet, but still above the 10-year average of 18.9.
“I would be more concerned if everybody was uber-optimistic,” said Larry Adam, chief investment officer at Raymond James. “When everybody goes to the same side of the ship, that’s when you have a problem.”
Write to Krystal Hur at krystal.hur@wsj.com
