Investing.com -- Wolfe Research said Tuesday it expects a near-term resolution to be reached with Iran, while warning that continued elevated oil prices could trigger a selloff in U.S. stock indices if inflation remains above expectations.

The firm said it remains focused on monitoring the Strait of Hormuz and actual ship traffic patterns. Without an Iran agreement, hotter-than-expected inflation could serve as a negative catalyst for equities, according to the research note.

The labor market has strengthened, with hiring showing improvement. Friday's jobs report came in stronger than expected, putting the economy in a situation where positive economic data could work against markets by increasing the likelihood of Federal Reserve rate hikes to combat inflation.

Wolfe Research noted that trading had become frothy in certain market segments leading up to Friday. Among the 20 top-performing companies in the S&P 500 year-to-date, all are connected to artificial intelligence themes.

The momentum factor appears stretched and vulnerable to reversals during periods of volatility, the firm said. Correlations between stocks have dropped sharply since the March 30 market bottom, with cross-sector correlations staying low throughout the year.

The research firm said any market broadening across sectors would likely prove temporary. It pointed to the growing influence of exchange-traded funds and retail investors on market direction, with passive fund flows favoring the largest sectors and stocks in the S&P 500.

Technology companies continue to benefit from this market structure, according to Wolfe Research. The firm said investors will likely maintain their preference for companies with strong secular growth prospects relative to the broader market if economic growth slows due to higher energy costs.

The firm dismissed concerns that recent mega-cap initial public offerings signal a market top, instead viewing them as evidence of increasing investor confidence.