Forecasters worry stocks could see a speculative 'blow-off top' rally that ends in another painful decline

• Wall Street is eyeing a blow-off top rally that leads to another steep drop.
• Stocks have rebounded sharply since the recent ceasefire, but a formal peace deal hasn't been reached.
• Analysts are eyeing a market "consolidation" that could happen as soon as May.

There's a scenario that's becoming increasingly feared on Wall Street: the bull-market rally that's taken stocks back to all-time highs will see one more spike before ending in a painful decline.

Talk about an explosive "blow-off top" is building as markets have rebounded sharply, though the Iran war is still technically ongoing. The S&P 500, which dropped around 7% from the start of the war through late March, is now up 12% from its trough and is hovering at record highs.

The market has largely been propped up by optimism that a resolution is around the corner, particularly as the US and Iran have extended their ceasefire. But doubts are building among some forecasters, who think the latest surge could soon end in disappointment for investors.

Mark Spitznagel, the CIO at Universa Investments, said he was doubling down on his view that the market was headed for a blow-off top rally amid the Iran war, which he thinks could take the S&P 500 to 8,000 before the index could plummet.

Spitznagel, who's been eyeing a rally and an ensuing bust in stocks for years, previously told Business Insider in February that he expected the decline to be comparable to the 1929 stock crash.

"If someone is bullish today and they weren't three years ago, they need to seriously revisit their investment approach," he told Business Insider of his current outlook.

David Rosenberg, a top economist and the founder of Rosenberg Research, was also eyeing a sharp rally — likely driven by investors' fear of missing out — before entering a deeper decline. Many investors are likely still haunted by the memory of the post-Liberation Day rally, he said, pointing to how stocks soared as President Donald Trump softened his stance on global tariffs.

"Can this rally continue? It certainly can. But can it continue in a way that leaves the market increasingly exposed to disappointment and another leg down? That is also likely," Rosenberg wrote in a note to clients on Wednesday, pointing to how quickly valuations have rebounded despite an "unsettled" risk backdrop.

"In that sense, the recent bounce looks less like the start of a clean new leg higher and more like a FOMO-driven squeeze that could once again give way to a flatter, more corrective phase, much like the one seen in late 2025, unless a meaningful policy catalyst arrives," he said.

Goldman Sachs also flagged the potential for a coming stock decline despite the current rally ripping through risk assets. Though the bank is sticking to its 7,600 price target for the S&P 500 by the end of the year, the risk of another drawdown remains "elevated" after the sharp relief rally, analysts wrote in a note this week.

Despite ongoing momentum, stocks will likely see a "consolidation" sometime next month, according to Mark Newton, the head of technical strategy at Fundstrat Research.

"Bottom line, I expect the recent sharp move will likely require consolidation in May. However, at present, it's prudent to watch for evidence of trend deterioration before attempting to sell into this rally," he wrote in a note on the mixed outlook for stocks.

Kevin Dempter, a technical analyst and the director at Renaissance Macro Research, said the market was flashing signs that a new "momentum thrust" was underway. He pointed to signals like the rising percentage of stocks rising over a 10-day period.

Still, positioning in the S&P 500 looks like it's near "bullish extremes," he wrote in a note.

"While the outlook still favors momentum, we would characterize this as a later-stage phase, one that carries an increased risk of a speculative blow-off top, potentially reminiscent of 1999," he said.