Investors can’t seem to catch a break in 2026, but Jefferies says the pain should soon be over and that stocks are poised to surge.
Major stock indexes fell on Friday after data from the Bureau of Labor Statistics showed the US economy lost 92,000 jobs in February, well off economists’ expectations for a gain of around 50,000. It was the latest in a string of headaches this year for investors, who have had to grapple with AI disruption, further tariff uncertainty, and surging oil prices amid the US confrontation with Iran.
But fear not, analysts at Jefferies say — a rip-roaring rebound awaits.
“I think we rally from here,” Michael Toomey, a managing director for Jefferies’ equities trading team, said in an email to clients on Friday.
He added: “I think this has been the most painful week in a long time for performance and we’re hitting a variety of stress levels that tend to help the tape bottom.”
The outlook for the months ahead remains murky, and Friday’s jobs report should stoke fears of a potential consumer slowdown if the labor market starts to crumble. At the same time, if the Iran war drags on, high oil prices could generate new inflationary pressures.
Still, Toomey offered several reasons that a bottom should be in on the recent stock sell-off. Let’s lay them out:
Crude oil overbought
Toomey said crude oil is at its second-most overbought levels ever — as measured by its relative strength index — meaning upward price pressures should soon ease, soothing investors’ inflation concerns. This is, however, simply a technical observation and doesn’t account for real-world political moves.
“The only time it was more extended was during the Gulf war in 1990 (10,583 trading days in this dataset),” Toomey said. “Given the inverse correlation to equities, as crude stalls, that should help the tape.”
Near-term VIX levels
As a way of protecting against downside in stocks, investors can buy contracts on the CBOE Volatility Index, or VIX, for the months ahead.
Near-term contracts have recently shot higher than those many months out, signaling investors are extraordinarily concerned about risks in the weeks ahead. When investors are this fearful, it can be a contrarian bullish sign.
“Highest level since Tariff scares last April,” Toomey said. “Historically these inversions are good times to buy stocks.”
CNN Fear & Greed Index
To a similar point, CNN’s Fear & Greed Index is showing high levels of pessimism, Toomey noted, another contrarian signal that suggests the market’s next move is up.
CNN
Implied correlation high
Another manifestation of weak investor sentiment is the implied correlation among S&P 500 stocks. It’s fairly elevated, which means investors are dumping stocks indiscriminately as panic sets in.
Jefferies
Short momentum slowing
Long-short momentum indexes started to normalize on Friday morning after dramatically favoring the short side over the last few days, Toomey said. This could be a sign of waning pessimism in the market.
ETF trading elevated
Finally, ETF shares made up 42% of the trading volume on Friday, up from a low-30s average, Toomey said. A lower trading volume from shares of individual stocks means investors are exceptionally fearful, he said.
“This remains very elevated and shows the stress in the market,” he said. “I can’t recall a time of ETFs being this elevated for this long.”
