A Bull Market, with Entry Points Ahead

Several factors could contribute to that near-term volatility. A meaningful part of the recent rally has reflected optimism that diplomacy could eventually produce an Iran peace deal and a more durable reopening of the Strait of Hormuz, helping to ease the oil shock, reduce inflation pressure, and stabilize investor sentiment. That is understandable, because lower energy prices would improve the macro backdrop and support risk assets. But markets often move ahead of confirmed outcomes. If negotiations stall, implementation proves uneven, or supply normalization takes longer than expected, some of that relief rally could unwind. More broadly, the market has already priced in a meaningful amount of good news, including enthusiasm around artificial intelligence and improving confidence in the earnings outlook. In that environment, even a modest disappointment on inflation, rates, policy, or geopolitics can trigger a healthy bout of profit-taking. In addition, the approaching wave of potentially record-setting technology IPOs could further intensify speculative enthusiasm and suggest that short-term investor sentiment is becoming increasingly stretched.

Importantly, temporary setbacks are not unusual during longer-term advances. Bull markets rarely move higher in a straight line; they tend to climb through a series of rallies, consolidations, and pullbacks that help reset sentiment and create more durable foundations for the next leg higher. History also suggests that periods surrounding changes in Federal Reserve leadership can invite added scrutiny and short-term volatility. Jerome Powell was tested immediately in February 2018 as equities sold off sharply amid a volatility shock. Janet Yellen inherited a delicate policy transition in early 2014, with markets closely focused on tapering, labor-market data, and the challenge of communicating the path away from crisis-era policy. Ben Bernanke took over in 2006 with inflation, energy costs, and the housing cycle already under close watch, and Alan Greenspan faced the 1987 stock-market crash just weeks after taking office. In each case, the early challenge did not define the full market cycle itself, but it did remind investors that leadership transitions at the Fed often come with a period of adjustment.