Wall Street traders are showing heightened angst as the stock market heads into the summer months, which are historically a low-energy spell for stocks.
Traders are on edge for myriad reasons; chief among them are low returns on formerly high-flying technology stocks and ongoing negotiation gridlock between the U.S. and Iran, which has sent oil prices up.
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Will the jitters continue? It sure looks like it.
“The U.S. economy has the traditional markers of being late in the business cycle — unemployment is low, inflation remains above target, and credit spreads are tight,” says Dan Buckley, chief analyst at DayTrading.com.
Buckley notes that market valuations are also elevated, as some growth and good news are priced in. “Leadership is also concentrated, which limits some of the traditional diversification associated with indices,” he says. “This is generally the point when equities struggle to make further gains.”
Market data technicians see market enthusiasm waning, and it’s not necessarily due to the summertime blues.
“The market is like a rubber band, it gets stretched out, then comes ripping back in the other direction.” — Craig Kirsner, president of Kirsner Wealth Management
“There’s a strong consensus in the markets, where retail trader data shows a very cautious crowd,” says Jonathan Squires, CEO at Tapaas, a market trader surveillance systems company. “Thirty-nine percent of retail traders by headcount are holding long positions on Nasdaq right now, against a T6M (trailing six months) average of 56%.”
Squires notes that when tracking positioning by dollar value (which reflects where the larger, more sophisticated money is sitting), the market bull sentiment drops to just 28%. “Big money is significantly more bearish than the crowd, which is already bearish,” he says.
With market watchers nervous and economic and geopolitical forces giving them good reason to be, what are the biggest factors driving a potential market sell-off, or worse?
These five issues should keep investors awake at night, quite possibly through the end of 2026:
— Oil prices and the Iran conflict.
— Institutional investors’ positioning on stocks.
— Stubborn inflation.
— Upcoming midterm elections.
— Borrowing rates for big purchases.
Oil Prices and the Iran Conflict
Absent a clinched deal between the U.S. and Iran this month, how is the Middle East standoff impacting the stock market right now, and down the road? Squires points to oil market positioning as the real tell.
“Retail traders are only 45% long on crude right now, against an historical average of 81% (T6M),” he says. “That’s a material gap, and it means most retail investors are not positioned for an oil price shock, even with Iran still wobbly.”
The outlook for the U.S.-Iran negotiations appears to be split between the two hemispheres, with many Western traders banking on oil prices coming down, while most Asian traders still expect prices to rise.
“If an escalation triggers a spike in energy prices, a lot of U.S. and E.U. traders are going to get caught offside at once, and that kind of forced repositioning is exactly what amplifies market slumps,” Squires adds.
Institutional Investors’ Positioning on Stocks
The big market money is bearish on the S&P 500, and investors are suddenly very bearish on the Dow.
“There’s a divergence between retail and institutional positioning on U.S. equities,” Squires says. “On the S&P 500, 39% of traders are long by count but only 24% by value, meaning larger players are considerably more pessimistic than smaller ones. That kind of split tends to resolve in the direction the big money is pointing.”
Main Street investors aren’t optimistic, either. “Just look at the Dow, where retail long positioning collapsed from 61% to 30% in just two weeks between May 11 and May 25,” Squires says. “Now traders smell blood in the near term.”
Stubborn Inflation
One of the main risk factors for the 2026 market is a familiar one: inflation. “If inflation rises, real yields generally rise, which compresses equity multiples,” Buckley says. “And though the Fed still has an easing bias with around 50 basis points of rate cuts discounted by the end of the year, the mix of macro factors might suggest more neutral policy or even slightly tighter, depending on how strict the central bank is about 2% inflation.”
Buckley notes that the market is on familiar turf, as in the latter half of 2025, marginal buyers were slowing while markets rose primarily due to a lack of selling pressure. “In the end, this matters because asset prices don’t move based on ‘good or bad,’ but move relative to what’s already baked in and how things transpire or are expected to change relative to that,” Buckley says.
[Read: 8 Best Quantum Computing Stocks to Buy in 2026]
Upcoming Midterm Elections
Craig Kirsner, president at Kirsner Wealth Management and author of the book “Help Preserve Your Wealth and Leave a Legacy,” says he “100% believes” there will be a stock market downturn starting in July 2026 and lasting until October or November 2026, due primarily to the four-year midterm election cycle.
“Typically, around July of each four-year midterm election cycle, the market heads down due to the uncertainty around the upcoming election,” Kirsner says. “The markets don’t like uncertainty, which is why historically this is usually what happens. Obviously, the past doesn’t predict the future, but history does rhyme.”
Another reason for the market downturn is that, after the March 2026 downturn, it has raced back up in almost a straight line. “The market is like a rubber band, it gets stretched out, then comes ripping back in the other direction,” he says.
Kirsner says that his firm will go more defensive early on with client portfolios, then wait for the bottom signal to arrive to get back into the market, most likely around October or November of this year.
“The good news is that typically after the election is over, no matter who wins, the S&P 500 historically rallies … in what’s called the ‘thankfully it’s over’ rally,” Kirsner says.
Borrowing Rates for Big Purchases
Alexei Morgado, a Florida-based real estate agent and founder of Lexawise, a real estate agent exam preparation company, says from his sector’s perspective, the risks that worry him most are inflation, federal policy, employment, consumer confidence and tariffs, as each can potentially have an impact on buyers’ behavior.
“Inflation remains a key risk factor as the April CPI increased by 3.8% on a year-over-year basis,” Morgado says. “As a result, the Fed maintains its rate at a ‘higher for longer’ level and remains concerned about economic conditions. This puts borrowing rates at the forefront of risk factors and makes it harder for buyers to spend their money on expensive purchases.”
Employment numbers are also an indicator for the economy and markets. With unemployment at 4.3% and 115,000 jobs added in April, the labor market appears to be stable but slowing.
“Therefore, buyers will be worried about future jobs and will not spend money on expensive products,” Morgado states. “Higher tariffs should be considered due to potential effects on home repair costs and prices of consumer goods. Consumer confidence is important because people often delay large purchases when feeling pressured. They’ll avoid buying a house, car, investing and remodeling.”
Take the Longer View With Your Portfolio
Investors may review the critical factors affecting the stock market and conclude that positive outcomes for each are highly uncertain, if not highly unlikely.
“We see the next big risks as how leaders react to the crisis,” says David Russell, global head of market strategy at TradeStation Group. “On the Iran front, do they continue to seek de-escalation, or prolong the issue? Do central bankers bend to political pressure and keep interest rates, currently on ‘pause’ mode, too low?”
Credit markets could be another risk. “There’ve already been concerns about private credit and heavy borrowing by hyperscalers,” Russell says. “Those could become problematic if interest rates increase.”
Russell says one big mistake retail traders make in a chaotic market is focusing too much on individual stocks. “Volatility usually brings correlation,” he notes. “Investors might benefit from taking a step back and focusing on the bigger indexes instead of individual stocks. After months of steady gains, the selling and volatility might need some time to play out.”
Other financial experts agree, noting that if an investor expresses fear over the stock market, the old adage “don’t panic” holds true. “Don’t sell everything as soon as you see some bad news,” advises Kevin Marshall, a Phoenix-based certified public accountant and market analyst. The most common mistake is that people sell when the market falls, and then buy only when it rises. “In this way, a big amount of money is really lost; it’s better to have a plan and stick to it, even if the market is unstable,” Marshall says.
He adds that if he were to invest $25,000 or $50,000 now, he’d spread the cash around. “One part would be invested in funds that follow the whole market, because that’s the safest way to put money into safer things,” he says. “Another part would be put into safer investments, and a little money would be left aside, just in case a good opportunity for investing appears.”
The most important move is to avoid rushing to earn profits quickly and making decisions out of fear. “Do that, and you can really damage your financial future,” Marshall says.
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Update 05/26/26: This story was published at an earlier date and has been updated with new information.
