As S&P 500 approaches record highs, this is what could derail the stock-market rebound

By Christine Idzelis

Oil prices would need to touch fresh 2026 highs for stocks to make new lows here, DataTrek says

The S&P 500 has bounced back from its March low, rising sharply Tuesday as oil prices retreated.

The S&P 500 was back near its all-time high on Tuesday as investors in U.S. stocks appeared content to look past the fact that the Strait of Hormuz was still mostly closed.

The major U.S. equity index has now erased all of its losses since the start of the Iran war: On Tuesday, the S&P 500 SPX finished just above levels seen in late February shortly before the conflict began.

Market strategists were saying on Tuesday that escape velocity has likely been reached. Unless oil prices climb to a new peak, the S&P 500 index probably won't retest its March lows, said Nicholas Colas, co-founder of DataTrek Research, in a note shared with MarketWatch on Tuesday. Investors watch oil prices closely as a sudden spike can lead to a recession, he said, but recent trading action highlighted optimism that the energy-supply disruption triggered by the Iran conflict might be short-lived.

"The S&P 500 actually bottomed five trading days before oil's peak, on March 30th, suggesting that equities were looking through a temporary supply disruption premium," Colas said in the note. "That turned out to be a prescient move, as oil prices have since declined."

Prices of West Texas Intermediate crude (CL.1) declined 7% on Tuesday to around $92 a barrel, according to FactSet data.

Crude could still "grind its way slightly higher over the near term," but barring another spike to a new multiyear peak above $113 a barrel for the U.S. benchmark, stocks will likely "see through those moves," said Colas.

To support this view, Colas turned to the historical record. He cited the Gulf War in 1990 involving Iraq's surprise invasion of Kuwait as the "closest analog to the current environment when it comes to how oil prices affect U.S. equity valuations."

During that conflict, West Texas Intermediate crude peaked on Oct. 11, 1990, at $41.07 a barrel - with the S&P 500 bottoming that same day, Colas found. The S&P 500 never retested that low as oil prices declined sharply in the next 11 days and remained below their peak in subsequent weeks, according to his note.

"Once crude peaks, stock prices stabilize," Colas said. "We remain bullish on equities over the near term."

The S&P 500 advanced a sharp 1.2% on Tuesday to end at 6,967.38, just 0.2% below its record closing peak of 6,978.60, notched Jan. 27, according to Dow Jones Market Data.

The Dow Jones Industrial Average DJIA was also up on Tuesday, gaining 0.7%, while the technology-heavy Nasdaq Composite Index COMP rallied 2%, notching its 10th straight day of gains. That is its longest winning streak since November 2021, according to Dow Jones Market Data.

-Christine Idzelis

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04-14-26 1718ET