U.S. stocks could be heading toward a tricky patch over the next two months, with midterm elections in focus, longer-dated Treasury bond yields trading at multiyear highs, and volatility readings suppressed.

The broader market backdrop, however, belies those concerns. The equal weighted index of the S&P 500 is now up more than 17% for the year, volatility gauges are trading at the lowest levels since early January, and data suggest fading bets on an autumn Federal Reserve rate hike.

The summertime rally, in fact, has taken the benchmark S&P 500 nearly 4% higher since the end of last month, alongside an impressive 5.3% gain for the tech-focused Nasdaq Composite, and a solid 2.24% advance for the Dow Jones Industrial Average. Earnings, meanwhile, are crushing it, with corporate profit growth on pace for its best first half gains since 2021.

The advances have been impressive also for their breadth, with energy, health care, financial, and materials stocks pacing benchmark gains over the past month, alongside the 5.2% rise for the information technology sector.

However, Jonathan Krinsky, chief market technician at BTIG, urges investors to stay vigilant, noting that election year performance in the late August to early October period has been one of the toughest market environments over the past three and a half decades.

"The 'broadening' has happened, and the vibes are immaculate," said Krinsky of the market's recent highs and the rally that has lifted stocks from its early summer torpor in late July. "Unfortunately, history says don't get too comfortable as we enter the worst part of the calendar during midterm election years."

Midterm election cycles have been brutal for stocks, at least in terms of equal weight index gains, with an average pullback of around 7% over the 53 days between Aug. 18 and Oct. 10, Krinksy noted, citing data going back to 1990. The one year in which that didn't occur, 2006, booked a 9% loss in the May to July period instead.

"While the midterms themselves can sometimes cause volatility, it's often something else that we may not even be aware of," he said, citing the U.S. invasion in Kuwait in 1990, the collapse of Long Term Capital Management in 1998, the emergence of the Ebola virus in 2014, or the U.S.-China trade war in 2018.

Adding to the concerns are the fact that stocks are trading at or near their all-time peaks, while the VIX volatility index fell to the lowest levels of the year last week and suggests muted movements for the S&P 500 over the coming month.

He also points out that this year's market action has been largely one-way, with not a single session notching 80% downside volume on the S&P 500, when the average year sees 21 days and there has never been a year with fewer than 5.

Treasury yields, meanwhile, have trended firmly higher this summer, with longer-dated 30-year bonds trading near the highest levels since 2007 at 5.26% and 10-year notes back to testing the 4.7% level in early Monday trading.

"We are in a window that historically sees downside volatility, and we are entering it with the market at all-time highs and the Vix at 2026 lows," he said.

"We think this a very attractive time to pare down risk, or look at hedging broad-based equity exposure as we enter a very difficult part of the calendar, historically speaking," he added.