Investors are facing a challenging landscape in 2026, with major stock indexes declining sharply amid disheartening economic data. On Friday, the Bureau of Labor Statistics reported a loss of 92,000 jobs in February, significantly missing economists’ predictions of a gain of approximately 50,000 jobs. This downturn adds to the ongoing struggles investors have been contending with this year, which include disruptions from artificial intelligence, uncertainty surrounding tariffs, and rising oil prices exacerbated by tensions involving Iran.
Despite the current turbulence, analysts at Jefferies are optimistic about a market recovery on the horizon. Michael Toomey, managing director for Jefferies’ equities trading team, expressed confidence in an impending rebound. In a communication to clients, he reflected on the recent strain on market performance, stating, “I think we rally from here,” and termed the previous week as “the most painful in a long time for performance.”
However, the outlook remains complex. The recent jobs report may heighten concerns about a potential slowdown in consumer spending if the labor market continues to weaken. Additionally, should the conflict with Iran persist, it could drive oil prices higher, leading to renewed inflationary pressures.
Toomey provided several indicators suggesting that the recent stock sell-off may have reached its low point:
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Crude Oil Levels: Toomey pointed out that crude oil is currently among the most overbought it has been, based on its relative strength index. He noted that such overvaluation is often followed by a correction that could alleviate inflation worries for investors. He recalled a similar scenario during the Gulf War in 1990, suggesting that easing oil prices would have a positive correlation with equities.
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Near-term VIX Levels: Investors have been purchasing contracts on the CBOE Volatility Index (VIX) to hedge against downward trends in the stock market. Recent spikes in near-term VIX contracts indicate heightened concern among investors, which historically can act as a contrarian signal signaling potential buying opportunities.
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CNN’s Fear & Greed Index: This index is currently showing significant levels of fear among investors, which Toomey considered another bullish contrarian signal indicating a likely upward market movement.
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Implied Correlation Among S&P 500 Stocks: The elevated implied correlation among S&P 500 stocks suggests that investors are indiscriminately selling off assets. This level of panic is often characteristic of market lows.
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Short Momentum Indicators: Toomey observed a shift in long-short momentum indexes, which had recently favored short positions but began to normalize on Friday, hinting at a possible waning of market pessimism.
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ETF Trading Volume: Exchange-Traded Funds (ETFs) represented 42% of trading volume on Friday—up significantly from previous averages in the low 30s. A marked rise in ETF trading often reflects investors’ fears, but it also indicates heightened activity in a stressed market.
Given the current climate, Jefferies’ analysts encourage investors to remain vigilant while also recognizing the potential for a turnaround in stock performance as various indicators suggest underlying strength may soon re-emerge.
