By Laura Matthews and Saqib Iqbal Ahmed
NEW YORK, April 23 (Reuters) - U.S. stocks are rebounding and investors, reassured by diplomacy around the Iran war, are coming off the sidelines as AI-related spending and a strong start to the earnings season fuel a new fear: missing out on stocks' latest rally.
"The market will do whatever it has to do to prove the most people wrong. It's rallied 10% here in a very short period of time. Most people missed it," said Todd Morgan, chairman of Bel Air Investment
Advisors. "We've slowly added new money back into the market the last week or two, believing that there's a light at the end of the tunnel."
The S&P 500 has risen 11% from its March low and in recent days hit successive record closing highs, after falling 8% in the weeks following the February 28 U.S.-Israeli attack on Iran.
The disruption of shipping through the Strait of Hormuz, a major oil export route, raised the risk of an energy-driven surge in inflation. Risk appetite took a significant hit on fears that the war would become prolonged and escalate into a regional conflict, further disrupting energy supplies and triggering a global economic shock.
But a ceasefire between the U.S. and Iran has since helped to soothe nerves, while resilient first-quarter profits and economic data showing the U.S. economy remains on strong footing gave investors additional encouragement to wade back in.
Fear of missing out, or FOMO, appears now to be a powerful force.
"I think the biggest risk right now may be staying on the sidelines too long," said Michael Arone, chief investment strategist at State Street Investment Management. "I think that investors who are trying to time the market may risk losing out on some of this momentum."
EARNINGS GROWTH
Data from Deutsche Bank showed investors' equity positioning for the week ended April 17 logged one of its largest weekly jumps since 2010, although it remains only slightly above neutral.
"Every day is a good day to put long-term capital to work," said Seth Hickle, a portfolio manager at Mindset Wealth Management. "Even with elevated valuation ratios, the growth outlook remains strong for U.S. stocks."
Investors who spoke to Reuters are investing in technology, industrials and financials, with strong interest in AI, data centers, small caps and select emerging markets. The tech-heavy Nasdaq has advanced about 18% from its late March low, while an index of emerging market stocks has risen 15%.
Energy stocks remain an attractive bet, investors said, with oil expected to retain a supply-driven premium for several quarters even if prices soften. Brent crude futures are trading about 40% above their late February level.
Investors are also turning to materials and commodities to round out their portfolios, drawn by two long-term demand drivers: AI-linked capital expenditures and rising geopolitical uncertainty, both of which are expected to lift defense and infrastructure spending — and with it, materials prices.
"It's a bet that the earnings growth story holds and that earnings growth is going to support valuations," said Edward B. O'Gorman, CEO of River Wealth Advisors. "If we get back to a Fed cutting interest rates, that's a little bit of a tailwind."
Expectations for 2026 year-over-year earnings growth have leapt from 16% in early January to almost 20% last week, according to data from LSEG I/B/E/S. Technology companies account for the bulk of that increase, along with energy and materials companies.
Shannon Saccocia, chief investment officer, wealth, at Neuberger Berman, also believes the bounce in equities will hold and broaden beyond the handful of mega-cap tech names as economic growth rises above trend this year, further supporting earnings and consumer sentiment.
"Having people look past the noise of policy uncertainty and focus on the economic aspects and the fundamentals is going to be important this year in terms of being able to capture the moves in the equity market," Saccocia added.
JUST GETTING STARTED
For Bel Air's Morgan, the case for equities remains intact regardless of the daily rhythm of ceasefire diplomacy, with AI-driven profit growth likely to pull sidelined cash back into markets.
"I just have a great deal of faith and confidence that the market is going to move higher, especially if you buy quality names," he said.
Analysts are also hopeful that the stock market rally, which has been aided by strong inflows from systematic strategies, will find fresh support from retail investors who might have been relatively slow to buy into the market rebound.
"I wouldn't be surprised to see retail finally start chasing this rally," said Adam Turnquist, chief technical strategist for LPL Financial. The S&P 500's move above the 7,000 level has the potential to draw more buyers into the market, he said.
"We're not really overbought internally ... We would argue this breakout is really just getting started," he said.
(Reporting by Laura Matthews and Saqib Iqbal Ahmed in New York; Editing by Megan Davies and Edmund Klamann)
