Fidelity sends blunt message on S&P 500 after sudden rebound

The S&P 500 has been on the comeback trail, but in a LinkedIn post, Fidelity strategist Jurrien Timmer isn’t ready to call the all-clear just yet.

Following a remarkable rebound from recent lows, Timmer feels the rally has moved too far, too quickly. That calls for investors to separate a sustained recovery from one that’s gotten ahead of itself.

For context, the S&P 500 has had a wobbly but strong run over the past several weeks, climbing to record territory even as oil prices kept investors on edge.

The index recently hit a record high of 7,137.90, but stocks gave back some ground soon after.

The index currently sits in the low 7,100s, close to recent highs but still vulnerable to another pullback amid ongoing geopolitical tensions. 

The S&P 500’s recovery was aided by familiar forces. 

Big Tech regained momentum, AI stocks kept investors engrossed, while earnings expectations remain strong enough to support the broader market recovery. 

Nevertheless, Timmer’s latest Fidelity note points to multiple moving parts investors need to monitor closely, including the S&P 500’s technical setup, improving earnings expectations, bond yields, the dollar, and the impact of higher-for-longer oil prices.

While the rebound has been impressive, the real question is whether the market has enough momentum to keep climbing or if a reversal is coming.

S&P 500 year-end closes

• 2020: S&P 500 closed at 3,756.07.
• 2021: S&P 500 closed at 4,766.18.
• 2022: S&P 500 closed at 3,839.50.
• 2023: S&P 500 closed at 4,769.83.
• 2024: S&P 500 closed at 5,881.63.
• 2025: S&P 500 closed at 6,845.50.
  Source: FRED, using S&P Dow Jones Indices daily close data.

Fidelity strategist says the S&P 500 rally may be stretched

The S&P 500’s comeback has been impressive, but Timmer believes the market may have moved a bit too quickly and could be due for a pause.

MoreEconomy:

• Ernst & Young drops stunning take on economy as oil jumps
• Treasure secretary delivers surprise take on the economy
• Powell sends message on U.S. economy and AI-related job loss fear

He said that the forward price-to-earnings ratio for the S&P 500 tracked 9.5% below its high, which is encouraging, but the problem is that the momentum has come back too quickly.

For the most part, the equity market’s heatmap showed tremendous strength last week, spearheaded by gains across some of the biggest Mag 7 names, while technicals also improved. 

Putting things in perspective, the Roundhill Magnificent Seven ETF is up more than 10% this month, while the broader market is up about 8%.

On top of that, the cap-weighted S&P 500 index also nearly caught up with the equal-weighted index, and the Mag 7 fully retraced back to its October all-time highs.

Though that points to real force behind the rally, it also raises the risk that markets are pricing in a ton of good news. 

Timmer’s broader point is that the rally seems fickle and investors need to be careful about declaring victory too soon. 

Wall Street price targets for the S&P 500

• JPMorgan: 7,600.
• Barclays: 7,650.
• UBS Global Wealth Management: 7,500.
• Morgan Stanley: 7,800.
• Citigroup: 7,700.
• Goldman Sachs: 7,600.

Oil prices carry a warning for S&P 500 investors

Oil is another wildcard investors cannot ignore.

Timmer linked the current setup with two historical examples, including the Gulf War oil shock in 1990 and the post-COVID inflation spike in 2022. 

Back in the 1990s, oil prices surged from about $40 to $100 in today’s dollars, then eased out once the Gulf War broke out. 

That effectively marginalized the blast radius.

Related: Fidelity sounds alarm on 401(k)s, IRAs

Moreover, in 2022, oil moved from roughly $79 to $136 in today’s dollars, with the pressure lasting much longer as inflation and rate fears continued to build.

With oil, Timmer argues that it doesn’t need to crash for markets to matter.

It just needs to stay high long enough to squeeze the consumer, which complicates the Federal Reserve’s job and forces investors to rethink how much they are willing to pay for stocks.

Earnings strength keeps the S&P 500 bull case alive

Timmer also argues that the rally still needs earnings to continue doing the heavy lifting. 

According to him, the earnings season started off with consensus estimates calling for roughly 13% growth.

That’s a big number because stock prices can only stretch so far on the back of just pure optimism.  Naturally, for a sustained effect, companies need to deliver on the profits investors are already paying for. 

Then there’s another major positive signal. 

Timmer notes that forward revisions have held up a lot better than usual.

That means analysts aren’t aggressively cutting future estimates, which typically happens when companies start to warn over sluggish demand or tighter margins. 

That gives the S&P 500 a ton of cushion.

So the markets may have rebounded emphatically, and valuations might be a lot less forgiving, but earnings still matter.

As long as profits continue improving, the rally has legs. 

That said, here are three tech giants that kept the goods alive so far this earnings season:

• Intelposted a clean beat with Q1 sales of $13.6 billion and adjusted EPS of 29 cents, beating expectations as demand for AI-linked chips stayed healthy. 
• Texas Instruments also delivered, reporting Q1 sales of $4.83 billion, up 19%, with EPS of $1.68 and net income up 31%.
• ServiceNowkept the enterprise-AI story alive, with Q1 subscription sales up 22% to $3.67 billion and results coming in above the high end of guidance.

Related: Morgan Stanley resets gold price target for rest of 2026