The S&P 500 just had a month most investors won't see again for a while.
The benchmark has climbed close to 10% since the end of March, putting it on track for its best monthly stretch since late 2020. That's the same window when stimulus checks were landing and the vaccine trade was alive.
Even with peace talks falling apart, sticky inflation, and a Fed succession in motion, stocks ripped. The S&P 500 now trades roughly 3% over the high it set before the Iran war started.
Big Tech earnings on deck this week could push the index further or stop the run cold.
But the people moving the largest checks are starting to get nervous. Bank of America's John Tully wrote in a Sunday note that "we're seeing increased protection buying at the highs." Translation: hedge funds and big institutions are buying insurance, not chasing more upside.
USO, the biggest U.S. ETF tracking crude oil, is on its way to the largest monthly outflow it's seen since 2009. SOXX, the popular semiconductor ETF, just logged one of the biggest single-week pullouts in its history.
Both of those are some of the most crowded trades in the market right now.
Sharp rallies can keep going, or they can burn out fast. Indosuez Wealth's Asia chief strategist Francis Tan put it best when he said the market is "driving at 120 kmh now, and may have less reaction time when it is really time to change lanes."
BofA's trading desk is now telling clients to hedge across rate-sensitive areas of the market. That includes small caps, regional banks, and gold.
Mag 7 reports this week are the next test. Microsoft, Alphabet, Amazon, Meta, and Apple cover about a quarter of the index between them, so strong prints could fuel another leg up while weak ones could break the streak.
Treasury yields dipped Friday once the Justice Department wrapped up its probe of Fed Chair Jerome Powell, clearing the runway for Kevin Warsh to take over as Fed chair in May. That move boosted bets the central bank could resume cutting rates before the year is out.
Lower rates are a tailwind for stocks. They lift the present-day value of future earnings, which is why rate-cut hopes have been a quiet support for the rally.
The Fed meets Wednesday, with traders pricing 99.5% odds of no change at this meeting.
For now, the rally has every reason to keep climbing. The hedges going on at the same time tell a different story.
When big money buys the market and buys protection at the same time, that's a flag worth watching.
