Why this market rally still has room to run - until these two signals flash

MW Why this market rally still has room to run - until these two signals flash

By Barbara Kollmeyer

Nomura strategist says energy shortages could upset the apple cart

Convoys of Iraqi diesel-laden tanker trucks line up to unload their cargo at the Baniyas port refinery on the Mediterranean Sea, on April 15, 2026. Nomura strategist says energy worries are not over.

The S&P 500 is back in record-setting mode, after Wednesday's close marked the first record high since Jan. 27.

You can't keep a good market down right? We'll see.

Our call of the day comes from Nomura strategist Charlie McElligott, who is telling clients not to stand in front of the rally right now but has flagged two things that could signal the party's over.

The intensity of the rally comes amid a dearth of investors making bets on markets going higher, also known as "owning the right tail," said McElligott, who has been warning of that setup for weeks.

So investors who were "overhedged for chaos" have sent prices of put options, or bets on markets going lower, crashing and big investors racing to cover bearish positions on stocks. That's left a "scramble" for stocks and the big technology companies in particular.

Read: The S&P 500 just clinched a record high. Here are 6 charts to watch for what comes next.

McElligott believes this market upswing could go on for a while, because of just how underexposed investors have been.

But there are two things that could bring it to a halt, the Nomura strategist warns. The first is if May starts to show the signs of a "physical energy gut-punch from the actual barrels and petrochem-shortages."

Subsequent higher prices on those commodities could see central banks panic into tightening interest rates given the energy supply shock, and that leads to his second potential flag - a bond-market selloff. He sees that possible as fears over energy shortages and rate hikes could trigger "eventual negative growth shocks around the world," potentially dragging major economies into recession.

Once bond yields start rising, markets could get spooked, halting the current chase higher for markets.

Note, McElligott is not alone in his concerns over energy supply shortages. While Brent crude (BRN00) prices have dropped 10% this month over hopes for a resolution to the Iran conflict, analysts have warned of a looming "stress test for the global energy supply chain," due to Middle East industry damages from the war.

As for what to do?

"Nevertheless, I personally don't think you can short stocks right now until bonds re-break, or chase back into positioning zooms to 'extreme greedy/ FOMO' behavior first," said the strategist.

Presently though, "current exposures are just now being rebuilt and nowhere near 'overshoot," said McElligott.

Read: Retail investors missed the rally. Why strategist Tom Lee says they'll lead the next one.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are pointing slightly higher, as oil prices (CL.1) (BRN00) rise around 1%. Treasury yields BX:TMUBMUSD10Y are steady.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              7022.95    3.54%   6.01%   2.59%   33.12% 
   Nasdaq Composite                                                     24,016.02  6.10%   8.41%   3.33%   47.27% 
   10-year Treasury                                                     4.283      0.20    3.00    11.10   -4.70 
   Gold                                                                 4833.9     0.91%   3.91%   11.58%  44.67% 
   Oil                                                                  92.29      -5.80%  -2.43%  60.76%  44.77% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

An Iran official said the country won't give up enriching uranium for the sake of a deal with the U.S.

PepsiCo $(PEP)$ and Abbott Lab $(ABT)$ earnings are on tap.

Taiwan Semiconductor Manufacturing $(TSM)$ beat first-quarter earnings and revenue expectations, and lifted sales guidance.

Weekly jobless claims and the Philly Fed index are due at 8:30 a.m. Industrial production is coming at 9:15 a.m.

Best of the web

U.S. probes suspicious oil trades made before Trump Iran pivots, source says.

Pentagon approaches automakers, manufacturers to boost weapons production.

OpenAI investors question $852bn valuation as strategy shifts.

The chart

@KobeissiLetter

The Kobeissi Letter shares this chart showing how 47% of buy now, pay later (BNPL) users have been late paying those loans back in the past year. In an X post, Kobeissi notes that rate is up 6 points from 2025 and 13 points in the last two years. "High-income borrowers, young adults, men, and parents of young kids are among the most likely to miss payments," said the financial newsletter, founded by Adam Kobeissi. Driven by Gen Z and millennials, 25% of borrowers hold three or more BNPLs at once, with 29% turning to those for groceries and 20% for delivery or takeout.

Top tickers

These were the top-searched tickers on MarektWatch at 6 am.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   TSM     Taiwan Semiconductor Manufacturing 
   GME     GameStop 
   MSFT    Microsoft 
   AMZN    Amazon 
   PLTR    Palantir 
   AMD     Advanced Micro Devices 
   AMC     AMC 
   BIRD    Allbirds 

Random reads

Pangy the corpse flower is back in bloom.

Viral baby elephant Linh Mai is apparently pretty sassy.

Private equity bets on bagels.

BEYOND THE NEWS

MarketWatch Picks: We have two kids, $70K in debt and a $200K mortgage. My job slashed OT and now I don't think I can manage the bills. Help.

-Barbara Kollmeyer

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April 16, 2026 06:59 ET (10:59 GMT)

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