The S&P 500 is on the cusp of a record high. That’s a remarkable change of events, since the index was on the brink of a bear market just two months ago.

The S&P 500 soared 2.1 per cent across the past two days as investors welcomed a ceasefire, albeit fragile, between Israel and Iran. As the stock market has climbed back towards record highs, investors are wondering whether there is room for stocks to climb higher or if further roadblocks lie ahead.

The S&P 500 on Tuesday had closed just 0.85 per cent away from an all-time high.

“As Middle East tensions de-escalate, the focus will return to more fundamental concerns for investors such as tariffs, earnings, the federal deficit and President Trump’s One Big Beautiful Bill,” said Chris Brigati, chief investment officer at SWBC, in a Tuesday note.

Despite plenty of headwinds, including the possibility of reignited inflation from higher tariffs this summer, some Wall Street analysts believe stocks still have room to rise.

“We are not looking for a massive rally from current levels, but believe that the path of least resistance is a grind higher,” said Mohit Kumar, an economist and strategist at Jefferies, in a Wednesday note.

A steep drop and a sharp rally

The US stock market has been on a wild ride this year. After tumbling into correction in March and flirting with a bear market in April, the index recouped its losses in May and June and is up more than 3.5 per cent year-to-date.

The S&P 500 had entered the year hitting record high after record high. The index hit its last record high on February 19 as Wall Street rallied at the start of Trump’s second term.

The index began to tumble in March and April as the president unveiled his tariff policy, and it’s been trying to claw its way back toward a new record high since.

After Trump’s “Liberation Day” tariffs on April 2, the S&P 500 closed at its lowest level this year on April 8, down 18.9 per cent from its February record high.

The S&P 500 rallied sharply in April after Trump walked back his massive “reciprocal” tariffs. The index then gained 6.15 per cent across May as the rebound rally accelerated, posting its best monthly gain since November 2023 and its best performance in May since 1990. The benchmark index is up 3 per cent so far in June.

Although the Trump administration has only announced a trade deal with the United Kingdom and a truce in its trade war with China, many investors have been betting that the worst of the tariff confusion is in the past.

As the market has recovered, momentum around US tech and artificial intelligence has begun to pick up pace. The Nasdaq 100 on Tuesday closed at an all-time high, notching its first new record high since February. The Nasdaq 100 is an index comprising the largest tech companies in the United States.

Tech and AI stocks are beginning to return to their “leadership” in US markets, helping push the major indexes higher, said Ross Mayfield, an investment strategist at Baird.

“Does it become a bubble at some point? I think it’s possible, but I don’t think we’re there yet,” Mayfield said. 

“And in the meantime, getting leadership from these big tech names is huge for a US market that’s hyper-concentrated in that area.”

Keith Buchanan, senior portfolio manager at Globalt Investments, said the market has climbed to a level that might not be justified given the economic backdrop.

The market is “looking through” some of the “present and clear” risks associated with tariffs and how they might impact the economy, Buchanan said.

“It can do that at times in an irrational way,” he said. 

“There are concerns about what the future holds from a profitability standpoint.”

Where do we go from here?

While Wall Street has shrugged off the Israel-Iran conflict and awaited developments on the trade front, investors are also trying to gauge where tariff rates ultimately settle and what other factors might impact markets.

The current average tariff rate would still result in the highest tariffs in 90 years, noted Torsten Slok, chief economist at Apollo, in a Monday note to investors. That would lead to slower economic growth, higher inflation and higher interest rates for longer, according to Slok — all major obstacles to the S&P 500 climbing higher.

Geopolitics and second quarter earnings releases beginning in mid-July are other catalysts that could impact investor sentiment and the market, said Eric Freedman, CIO at US Bank Asset Management, said in a Monday note.

“How companies are absorbing or passing on tariff price increases represents a key item of investor interest in upcoming quarterly releases, with investors gauging the future impact on inflation, interest rates and economic growth,” Freedman said.

Kumar at Jefferies said in a Wednesday note that he is looking for how US jobs data holds up this summer and whether Treasury yields rise due to concerns about the deficit, which could pull investors away from stocks.

“The main message for investors is to stay invested and avoid reacting sharply to any news or market reaction that may have a short-term negative impact upon equity prices,” SWBC’s Brigati said.

“It is nearly impossible to attempt to time the market, therefore maintaining a disciplined and long-term investing approach serves investors well.”