S&P 500 Bull Market Looks Strong, but Volatility Risk Is Building

The global stock rally still has strong support from corporate earnings, but several market signals suggest investors should be prepared for more volatility in the weeks ahead.

According to the latest Weekly S&P 500 ChartStorm, global earnings expectations for 2026 and 2027 are rising sharply, while the share of countries experiencing earnings downgrades has fallen to a cycle low. That provides fundamental support for the broader global equity bull market.

US technology stocks, however, are sending more mixed signals. The sector has been largely consolidating since peaking in early June, but corporate insiders have recently increased their buying. At the same time, asset managers and hedge funds have built record short futures positions in the Nasdaq, while short interest across S&P 500 companies also remains unusually high.

That bearish positioning could work both ways. If stocks weaken, short sellers may benefit. But if the market keeps rising, traders could be forced to buy shares to close their positions, potentially adding fuel to the rally.

Valuations are also becoming more interesting. The top 10 US stocks’ forward P/E ratio has fallen toward the lower end of its range over the past decade, suggesting some of the valuation pressure around mega-cap stocks has already eased.

Elsewhere, several assets that investors recently abandoned are starting to recover:

Energy, gold and Bitcoin have experienced significant ETF outflows, even as their prices begin turning higher.
Indian stocks have underperformed emerging markets by 44.9%, the worst relative performance since 1996, partly because investors see India’s outsourcing-heavy economy as vulnerable to AI.
The VIX remains near the bottom of its range, signaling unusually low market volatility.

The last point may be the main near-term risk. Historically, very low volatility does not last forever, and seasonal patterns suggest the VIX could rise from current levels. Potential triggers include the Federal Reserve, rising bond yields, inflation and geopolitical tensions.

Investor takeaway: The broader bull market remains supported by improving earnings, while heavy bearish positioning could provide additional upside if shorts are forced to unwind. But with volatility sitting near unusually low levels, the path higher may become much less smooth.

Source: Weekly S&P 500 ChartStorm, Callum Thomas