Investors used to watching US equities go nowhere but up since late March have spent the past week without a reliable playbook.
Conviction in technology megacaps, the market’s most reliable bets for most of the spring, has deteriorated, forcing the group to flip-flop between losses and gains. Reversals stung the broader S&P 500 Index, too, as the gauge earlier this week clocked one of the biggest swings since the peak of the tariff-related rout in April 2025.
The back-and-forth rotation is likely here to stay, say strategists at 22V Research, as investors weigh signs of a solid economy against rising prospects of restrictive monetary policy. The firm’s regime dispersion indicator, a rough measure of how fast the moods are shifting from fear to greed, has jumped to the 94th percentile of observations, signaling increased disagreement among investors regarding where stocks are headed.
“The internals of the market are oscillating between risk-on and risk-off backdrops in a more extreme way than we have seen historically,” said Dennis DeBusschere, chief market strategist at 22V Research.
Appetites for risk have ebbed and flowed since Friday, when stronger-than-expected labor data all but put to bed hopes for interest-rate cuts this year. The report pushed the market into a “risk averse regime” for the first time since January, according to 22V Research.
The information technology sector spent the next four days oscillating between the worst and best-performing group in the S&P 500. The Nasdaq 100 Index plunged 4.8% last Friday. It has posted a move of 1% or more in either direction for five straight days, which ties for the most since August 2024.
“The market may be in a much-deserved rest” after “a historic run, and two-sided trading is more the norm,” said Ken Mahoney, chief executive officer at Mahoney Asset Management. “Just like in the movie The Perfect Storm, this market was hit with high winds, a cold front and heavy rain all at once.”
‘Fear and Greed’
Volatility has been evident in the sessions following last week’s employment figures, with defensive sectors outperforming before ceding leadership to technology and back again. Risky bets resurfaced on Thursday, even as producer prices rose in May at the fastest pace in more than three years, as investors picked up on beaten-down chipmakers.
“We’ve had some extraordinary events that are happening this week and it really shows that investors are pulled between two poles of fear and greed,” said Kim Forrest, chief investment officer and founder at Bokeh Capital Partners.
While investors debate the impact of resilient economic data and the Federal Reserve’s rate path, 22V Research strategists predict greater factor rotations and narrower market leadership. Going forward, investors should anticipate the market to shift from risk-off to risk-on and back again more frequently.
When will the swings subside? Volatility can go either way over the summer, according to Bokeh’s Forrest. Price swings may narrow as traders leave for vacation, but a lack participants may exacerbate a selloff on a down day.
For now, investors are laser focused on the Fed’s interest-rate decision at 2 p.m. on Wednesday and Kevin Warsh’s first press conference as the Fed chief shortly after.
Yet uncertainty around the stock market’s near-term trajectory is on the rise among Wall Street prognosticators. Wells Fargo & Co. strategists said the tech-driven selloff last week was a “wake-up call” for investors. JPMorgan Chase & Co. cut their near-term view to “tactically cautious,” noting investors may continue selling some of the AI-related companies that lead the recent rally.
Bank of America Corp. strategists warned investors to exercise caution as an increasing number of “bear market signposts” point to an approaching top.
“We got into a ‘throw a dart’ period where anything you bought worked,” said Mahoney. “It’s never supposed to be that easy.”