Forecasters worry stocks could instead see a ‘blow-off top’ rally that ends in another painful fall

• Wall Street is watching a blow-off top rally that leads to another steep drop.

• Stocks have rebounded sharply since the current ceasefire, but a formal peace deal has yet to be reached.

• Analysts are looking at a market “consolidation” that could happen in May.

There’s a scenario that’s becoming increasingly scary on Wall Street: The bull-market rally that has lifted stocks to all-time highs will see another spike before ending in a painful decline.

An explosive “blow-off top” is building as markets rebound sharply, even though the Iran war is still technically underway. The S&P 500, which fell nearly 7% from the start of the war to the end of March, is now 12% above its trough and hovering at record highs.

Optimism that a solution is near has boosted markets, especially since the US and Iran extended the ceasefire. But doubts are building among some forecasters, who think the latest surge could soon end in disappointment for investors.

Universa Investments CIO Mark Spitznagel said he was doubling down on his view that the market is headed for a shock top rally amid the Iran war, which he thinks could see the S&P 500 reach 8,000 before the index falls.

Spitznagel, who has been watching the rally and ensuing bust in stocks for years, previously told Business Insider in February that he expected the decline to be comparable to the 1929 stock crash.

“If someone is bullish today and wasn’t three years ago, they need to seriously reconsider their investment approach,” he told Business Insider of his current outlook.

David Rosenberg, a top economist and founder of Rosenberg Research, was also looking at a sharp rally — possibly driven by investors’ fear of missing out — before entering a deeper decline. Many investors are likely haunted by memories of the post-Independence Day rally, he said, pointing to how stocks rallied after President Donald Trump softened his stance on global tariffs.

“Can this rally continue? It certainly can. But can it continue in a way that could lead to market disappointment and another leg down? That’s also possible,” Rosenberg wrote in a note to clients on Wednesday, pointing to how quickly valuations have rebounded despite an “onset” risk backdrop.

“In that sense, the recent bounce looks less like the start of a clean new leg up and more like a FOMO-driven low that could once again give way to a flatter, more corrective phase, as seen in late 2025, until meaningful policy stimulus comes along,” he said.

Goldman Sachs also flagged the possibility of an upcoming stock decline despite the current rally ripping through risk assets. Although the bank is sticking to its 7,600 price target for the S&P 500 through the end of the year, the risk of another drawdown remains “high” after a sharp relief rally, analysts wrote in a note this week.

Despite the continued momentum, stocks will likely see “consolidation” next month, according to Mark Newton, head of technical strategy at Fundstrat Research.

“Bottom line, I expect the recent sharp move will require consolidation in May. However, for now, it is wise to watch for evidence of a trend reversal before attempting to sell into the rally,” he wrote in a note on the stock’s mixed outlook.

Kevin Dempter, technical analyst and director of Renaissance Macro Research, said the market is showing signs that a new “momentum thrust” is underway. He pointed to signs such as rising percentage of shares over a 10-day period.

Still, the situation in the S&P 500 appears to be nearing a “bullish peak,” he wrote in a note.

“While the outlook still supports momentum, we would characterize this as a later stage phase, which carries an increased risk of a speculative shock top, potentially reminiscent of 1999,” he said.

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