Stocks Near Record Highs—but Investors Still Aren’t Buying the Rally

U.S. stocks have staged a powerful recovery from their April lows, with the S&P 500 hovering just below record highs. But while the index is climbing, many investors aren’t convinced the rally is for real.

Despite a strong rebound, investor sentiment remains subdued, clouded by uncertainty over Trump’s tariffs, sticky inflation, a cautious Federal Reserve, and renewed geopolitical risks in the Middle East.

Cautious Positioning Prevails

Equity exposure among mutual funds, hedge funds, and retail traders remains below historical averages, as market participants slowly rebuild their risk appetite. Survey data shows that a large share of fund managers are still taking a more cautious-than-usual level of risk, and equity allocations are sitting well below long-term norms.

A ‘Hated’ Rally with Room to Run

Strategists describe the current rally as “still hated”—a dynamic not uncommon after sharp sell-offs. Some analysts have called it “one of the most-hated rallies” they’ve seen, despite improved clarity on policy and a potentially more dovish Fed. Notably, several Wall Street firms that had lowered their S&P 500 targets during April’s decline have now raised their year-end forecasts.

The median target now sits at 6,100, suggesting there’s still room for upside even as caution lingers.

Outside Big Tech, New Leaders Emerge

While Big Tech has dominated for years, this latest leg higher is showing strength in other sectors. Logistics, commercial services, and airlines are outperforming, suggesting broader market participation. Meanwhile, freight and goods production continue to lag. This sector rotation is being interpreted by some strategists as a positive sign that the rally has a more durable foundation.

Bottom line: Stocks are flying high, but Wall Street’s confidence hasn’t caught up. With risk aversion still evident and a broader mix of sectors leading the charge, this “hated rally” may still have fuel—especially if economic data and policy trends continue to cooperate.