MW The S&P 500 blowed past 7,000 in an epic comeback rally. Here's why it can keep going higher.
By Gordon Gottsegen
The stock market has hit new records despite narrow breadth
The S&P 500 has rallied back to all-time highs.
The Iran war may or may not be nearing a conclusion. But as far as the stock market is concerned, it's no longer been worth worrying about.
The major U.S. stock-market indexes have moved higher for three consecutive weeks on the news that the U.S. and Iran have been working together to de-escalate the conflict in the Middle East. They got another push Friday after Iran announced that the Strait of Hormuz was "completely open" - though may still be up for debate.
This past Wednesday, the S&P 500 SPX closed at an all-time high for the first time since January. It was also the first time on record that the index closed above the psychologically important 7,000 level. The S&P 500 then continued to rally through the end of the week, logging in two more record closes on Thursday and Friday.
This rebound came in hard and fast, with the S&P 500 going from nearly entering a correction - on March 30, it was down 9.1% from its January high - to a new record close in just 11 trading days.
Besides the speed of the rebound, another thing that stood out to investors was its narrow breadth. In a post on X, Scott Brown, the founder of Brown Technical Insights, noted that only 12 stocks in the S&P 500 were trading at 52-week highs when the index hit its record close on Wednesday. That means the S&P 500 was able to achieve a new record with only 2.4% of the index's stocks at highs of their own, which isn't something that happens very often.
Warren Pies, the co-founder of 3Fourteen Research, compared this rally to the peak of the dot-com bubble. In a note to investors, he pointed out that the only other time the S&P 500 rallied 10% in 10 days and ended at or near all-time highs was in March 2000. He pointed out that the rally in March 2000 was also led by just a few stocks.
Pies said that several factors, like credit spreads and Federal Reserve policy, make today's market conditions very different than those during the dot-com bubble. Still, the comparison may spook some people, and Pies said that the rally needs to broaden out in order to continue.
Earnings season will be the next big test
With investors moving past the Iran war, they may be turning their attention to something that more directly impacts stock performance: corporate earnings.
Earnings season for the first quarter of 2026 began this past week with reports from some of the largest banks and financial institutions, including JPMorgan Chase $(JPM)$, Citigroup $(CUL3)$, Bank of America (BAC) and more. Many of these financial companies beat expectations with their reports, and despite the geopolitical headwinds in March, their numbers suggested the American economy was doing just fine.
"On this type of issue, I have a phrase that I say: We go from worry season to earning season," David Bianco, chief investment officer at DWS, told MarketWatch.
Bianco explained that during "worry season," investors worry about macroeconomic forces and try to project the effects those forces will have on the market. High inflation may cause the Federal Reserve to raise interest rates, a weak labor market may point to an oncoming recession, war in the Middle East may cause energy prices to spike - and so on.
These macroeconomic forces are important to investors, but once earnings season begins, investors have microeconomic data to parse through. They get hard data that show how the companies in their portfolios are doing, and adjust their positions accordingly.
Coincidentally, the conflict in the Middle East began to cool down as soon as earnings season began heating up.
"Usually, earning season is positive to risk appetite," Bianco said.
Going back to the S&P 500's narrow market breadth, most of the 12 companies that were at 52-week highs on Wednesday were in the financials sector XX:SP500.40. This included Morgan Stanley $(MS)$ and Citigroup, which reported earnings prior to the S&P 500's record close above 7,000.
According to Dow Jones Market Data, 19 stocks closed at 52-week highs on Thursday, and then 52 stocks closed at 52-week highs on Friday - meaning that the rally is already showing signs of broadening out.
On top of that, the "Magnificent Seven" megacap tech companies were notably absent from this list.
The S&P 500 needs the Magnificent Seven to continue the rally
Andrew Slimmon, a senior portfolio manager at Morgan Stanley, said that it's useful for investors to understand the Magnificent Seven and the effect they have on the market whenever discussing market breadth.
"Breadth is a commentary on the Mag Seven, really," Slimmon told MarketWatch. "When the breadth starts to narrow, I don't think it's unhealthiness of the stock market. I think it's a commentary that these stocks have really come down in valuation."
These megacap tech stocks - including Nvidia (NVDA), Apple $(AAPL)$, Amazon.com (AMZN) and others - are heavily weighted in the S&P 500, making up roughly 36% of the index's market value, according to Dow Jones Market Data. That means when the Magnificent Seven do well, it gives the index a boost. And when they do poorly, it acts as a drag on the index.
After leading the stock market for much of the past two years, the Magnificent Seven faced headwinds in the beginning of 2026. Slimmon said that investors were selling their positions after scrutinizing the companies' free cash flows, despite their strong quarterly earnings.
This gave the Magnificent Seven companies a valuation reset - and when the Iran war broke out, the selloff pushed their share prices even lower. This created an opportunity for investors to buy up those stocks at a discount, while their fundamentals remained strong.
Read: Nvidia's stock is cheaper than Exxon's. Are investors ditching tech for energy?
"Anytime geopolitics takes front and center, it usually means focus on fundamentals and you can make a lot of money," Slimmon said.
Even after three consecutive weeks of gains, the Magnificent Seven stocks all remain below their 52-week highs, perhaps indicating that they have room to grow if investors feel comfortable returning to them. If that happens, it may be enough to push the S&P 500 even further into record territory.
Earnings season will provide a test for the Magnificent Seven. Tesla $(TSLA)$ will be the first of the bunch to report earnings, with its earnings call coming on April 22. The rest will report earnings in the coming weeks.
The major U.S. stock-market indexes ended the week higher. The Dow Jones Industrial Average DJIA gained 3.2% for the week, while the S&P 500 was up 4.5% and the Nasdaq Composite COMP jumped 6.8%.
Besides Tesla, other companies reporting earnings this coming week include UnitedHealth Group $(UNH)$ on Tuesday, International Business Machines $(IBM)$ on Wednesday, and Intel $(INTC)$ and American Express $(AXP)$ on Thursday.
-Gordon Gottsegen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 19, 2026 12:00 ET (16:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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