Where could US stocks go next?

2025 has been a year of twists and turns. While we don’t have a crystal ball to determine what could come next, there are some ways we can determine market sentiment, which can contribute to determining where stocks go next.

Below, are the market sentiment indicators for US stocks, that we think offer the best assessment of where equities could go next.

1, Put/ Call ratio for the S&P 500

The options market is worth analyzing when it comes to market sentiment, because it gives us an idea of where investors think the US stock market will be trading in the future.

The CBOE’s put/ call ratio for the US shows a marked decline in the ratio, which suggests that investors are buying a larger number of calls, compared to puts. When this happens, it means that investors are purchasing options, which give them the right (but not the obligation) to buy the US index in the future at a specific price.

When the number of calls exceed the number of puts, this can be perceived as a bullish signal as it shows a desire in the market to own US shares and a belief that the market will continue to appreciate. In contrast, the put/call ratio was elevated in early April, as investors turned bearish on US stocks on the back of President Trump’s reciprocal tariff plans. As stock markets have recovered, more bullish sentiment has returned to the market, but as you can see, sentiment remains vulnerable. Last week’s bond market volatility weighed on sentiment, and pushed up the put/ call ratio, however, that appears to be short lived.

Chart 1: CBOE US put/ call ratio, 1 year chart

2, What are people trading?

This can also help us to determine what is hot and what is not in the stock market. There are various ways to do this. One is to look at the most traded equity call options. In the US, the most traded equity option right now is Nvidia 1-month options that expire at the end of this month.

This is to be expected, since Nvidia will release its latest results later Wednesday. Nvidia’s results are a big deal for investors, as they are considered a bell weather for overall market sentiment.

The second most traded call option is Tesla, followed by Apple, although volume in Apple options is muted. The fact that the most traded call options are trillion-dollar tech companies is worth noting: there is interest in owning tech stocks, which are a major sector of the US stock market. If the market is bullish on tech than it can lift the whole market. Both companies have seen the strongest recoveries in the past month compared to other Magnificent 7 tech stocks. The rush to own call options, suggests that investors continue to remain bullish on the outlook for these tech behemoths, and they may continue to rally in the short term.

In contrast, the most traded put option is Bank of America. This suggests a rotation out of stocks that have defensive qualities, and a rotation into stocks that are more risk sensitive like tech.

3, Factors driving price action

The biggest factors that have been driving US stocks in the past month include momentum, liquidity, and size – the biggest companies have had the most impact on US equity indices. Momentum is a powerful driver of markets, especially in these lulls between FOMC meetings, key economic data and as we wait for the end of President Trump’s reprieve from reciprocal tariffs that will come to an end in early July.

As you can see in the chart below, momentum, as a factor that drives US stocks, has picked up from the lows, but it is well below the levels reached in Q4 2024 and into Q1 2025. This suggests that investors are holding back, that there is some residual worry lingering in the markets post the low in April, and that it may be a difficult journey back to the record highs from February.

Chart 2: Momentum, as a driver for US equities, 1 year chart

Overall, there is bullish sentiment in the market, especially for tech stocks. However, it may not be a straight line back to the record highs for US equities from earlier this year. This is why momentum remains lower than it was when stocks, and tech stocks in particular, were riding high in Q4 2024.