Key Takeaways
The US stock market’s record-setting rally is approaching a “frenzy” zone, according to a quantitative model from Bloomberg Industry Research strategists, suggesting the six-week climb may be entering a more vulnerable phase.
“Major US indexes reached all-time highs at the end of last week, driven by a robust April employment report,” Devarsh Vakil, Head of Prime Research at HDFC Securities, said. He added that the data, which showed the US economy adding 115,000 jobs against expectations of 55,000, “reinforced confidence in the resilience of the American economy.”
The rally has been fueled by stellar corporate profits, with first-quarter earnings growth for S&P 500 companies now tracking toward 27.7%, the strongest since late 2021. The S&P 500 gained 2.4% last week while the tech-heavy Nasdaq surged 4.5%. However, the Bloomberg model, which tracks six indicators, shows sentiment is becoming overextended. Three metrics in particular—high-yield corporate bond spreads, low volatility, and pairwise correlations—have pushed the gauge toward euphoria.
This potential for overheating comes as external risks mount. Brent crude prices have climbed above $105 per barrel amid the ongoing US-Iran conflict, fueling a 25% year-to-date rise in the S&P Energy Select Sector index. The energy shock is feeding into broader inflation, with the latest US consumer price index accelerating to 3.3%, a development that could delay anticipated interest rate cuts until 2027.
The global risks are creating a sharp divergence in markets like India, which are heavily dependent on energy imports. While Wall Street celebrated records, Indian benchmark indices slumped Monday, with the Sensex crashing 891 points, or 1.15%, to 76,436.53 and the Nifty 50 falling 1.00% to 23,935.55.
The sell-off followed an appeal from Prime Minister Narendra Modi for citizens to reduce consumption of fuel and avoid non-essential foreign travel, a move analysts interpreted as a response to pressure on India’s current account deficit. “This call for austerity has slightly negative implication for economic growth in FY27,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Continued outflows from foreign institutional investors (FIIs) and the failure to reach a peace deal in the Middle East have further dampened sentiment. Technical analysts note the Nifty 50 has slipped below key moving averages. A decisive break below 23,500 could accelerate profit booking and open a path toward the 22,800–22,500 zone, according to Shitij Gandhi, an equity technical research AVP at SMC Global Securities.
This article is for informational purposes only and does not constitute investment advice.
