Equity markets have staged a powerful rally to record highs, but beneath the surface, risk appetite appears to be narrowing increasingly toward technology and AI-related themes. The key question now is whether this pause becomes a healthy consolidation — or develops into a broader correction across both equities and crypto.
This content has been produced by Kvarn Investment Services Oy, a licensed investment firm supervised by the Finnish Financial Supervisory Authority. The content is intended for informational purposes only and should not be interpreted as investment advice or recommendation. All investing involves risks, and past performance is not a guarantee of future returns.
When we were writing the previous Kvarn Pulse newsletter, the markets were in quite an exuberant mood. The S&P 500 index had absolutely skyrocketed over the previous three weeks, rising to new record highs above 7,100 points.
A week ago, we estimated that the stock market rally had been so strong that immediate upside potential at the index level was beginning to look limited.
This week, we seem to be hitting that limit.
Over the past week, the trajectory of the S&P 500 index has increasingly turned into a sideways movement, and has moved upwards only marginally.
The engine of the rally has been the technology sector, and particularly semiconductors, which play a central role in the AI boom.
From the graph below, it can be seen that both the Nasdaq 100 index and the semiconductor ETF SMH are still in an upward trend, but this rise appears to have slowed down over the last week.
For the technology sector, the outlook remains quite positive.
The picture changes slightly if we shift our focus outside the technology sector.
The price of the equal-weighted S&P 500 index (using the ETF RSP as a reference) seems to have actually turned downwards.
While the technology sector has a weight of over 30 percent in the S&P 500 index, it is only about 15 percent in the equal-weighted index. The clearly weaker performance of the equal-weighted index illustrates that over the past week, the index has moved upwards largely driven by its heavily weighted technology sector.
Alongside the equal-weighted index, Dow Jones Industrial Average index is also showing signs of the rally stalling.
In strong bull markets, the strongest sectors typically include the financial sector (XLF) and the consumer discretionary sector (XLY).
From the graph below, we can see that the rally in both of these sectors has broken over the past week.
It therefore looks like market risk appetite is currently concentrated solely in the technology sector. The most likely scenario seems to be that we will soon see the rally in this sector stall as well, bringing the rise in equity indices to at least a temporary halt.
If this were to happen, attention would shift to whether it is just a consolidation or perhaps a more significant correction.
If we see a downward move, our attention will turn to the 7,000-point level of the S&P 500 index.
Up to this level, we are inclined to dismiss downward moves primarily as mere noise and natural consolidation after a historically strong rally. As long as the index remains above 7,000 points, we are still above the local top from earlier this year, and we see no reason to question the integrity of the uptrend that began in April.
Dropping below 7,000 points would be the first point where we would be willing to even evaluate a price decline as something other than noise. Currently, we are about two percent away from this level, meaning the index has quite a bit of room to "breathe" before we start paying major attention to it.
Two weeks ago, we highlighted semiconductors as a theme idea in the Kvarn Pulse newsletter, for example through the VanEck Semiconductor ETF (VVSM). The price of this fund has risen by over ten percent in a couple of weeks.
Such a fierce rally is of course fantastic, and we are glad to be able to offer our readers good theme ideas. At the same time, after such a strong run, we think it might be justified to consider whether it would be appropriate to lock in at least some of the unrealized profits.
If we look at the situation with semiconductors in light of the Relative Strength Index and assess the price's distance from its 200-day moving average, the situation is starting to resemble the summer of 2024. Back then, semiconductors had a somewhat similar wild rally, and that local top was only surpassed in the summer of 2025.
Of course, nothing guarantees or even suggests that the development has to follow the same path this time, but after such sharp rallies, it is worth critically examining how much upside potential one believes is still left.
Another theme we highlighted, the Global X Autonomous & Electric Vehicles ETF (DR7E), has also been rallying strongly, and the same observations partially apply to it.
The difference compared to semiconductors is that the momentum of this theme has held up slightly better over the past week, and as of Wednesday, April 29, 2026, it seems to still be on its way to a new all-time high daily close.
As a third theme two weeks ago, we highlighted data centers (Global X Data Center REITs & Digital Infrastructure ETF (V9N)). Their performance largely mirrors that of semiconductors, and after a steep climb, the price seems to be starting to consolidate.
We are therefore in a situation where technology, and especially AI-related themes, have made massive gains. These rallies are showing signs of stalling, but they have not yet turned into a downtrend.
Exact decisions naturally depend on each investor's personal investment strategy and total portfolio composition, but at least for riskier assets, we feel the situation looks clearly more like a selling opportunity than a buying one. It is often nice to lock in unrealized profits right below a local peak, and it is easy to jump back in if the rally continues after all.
The at least temporary fading of risk appetite in the equity markets forces us to be more cautious regarding our expectations for the crypto market as well.
The rally of the largest cryptocurrency, Bitcoin, seems to have stalled in recent days.
As long as the price of Bitcoin stays above $73,500, we are ready to write this off as mere consolidation. Dropping below this level would force us to consider the possibility that the uptrend that began in early April has truly broken.
Monitoring Bitcoin's price may also be useful over the coming week for other reasons. If the market's risk appetite starts fading more significantly, it could show up first in the prices of cryptocurrencies, which often react the fastest.
Adding to our caution regarding the crypto market is the fact that over the past week or so, the total value of the crypto market excluding Bitcoin (and stablecoins) seems to have first failed to rise above its mid-March local peak (1), and after that has begun to paint slightly lower highs each time (2, 3, 4).
Last week in the Kvarn Pulse newsletter, we wrote that the crypto markets looked highly interesting due to their low relative valuation.
This view still holds. In addition to a low valuation, however, we would also like to see positive price momentum and growing relative strength in the price development of cryptocurrencies.
Over the past week, the interpretation of the presence of these two elements has become more uncertain, and as a result, we are pivoting back to a more wait-and-see stance regarding cryptocurrencies.
In light of the IBIT/SPX ratio, Bitcoin has by no means begun to significantly weaken against the equity market yet. However, we would like to see this ratio exceed the local top seen in late March, which has failed to happen over the past week.
In summary, we note that our expectations regarding the crypto market's upside potential are more cautious than last week, but not yet distinctly negative.
The coming week in the markets will be colored above all by the earnings reports of several mega-cap companies and the market's reactions to them. Thus, there could be large moves ahead, and at the same time, the conflict in the Middle East is still ongoing.
Wherever the market goes, we will continue to monitor the situation and keep you updated, so stay tuned!
The information and sources presented are for illustrative purposes only. While obtained from sources deemed reliable, their accuracy cannot be guaranteed.
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