Following a significant downturn due to President Trump's initial tariff announcement in April, major stock indexes have experienced a robust recovery. After six consecutive days of gains, the S&P 500 is now within 3% of an all-time high. However, some Wall Street analysts are warning that the next market movement may not be definitively upward. Investor sentiment, which previously hit historic lows, has since rebounded sharply, driven by a strong rally in technology stocks. Despite this optimism, concerns remain about potential economic slowdowns and inflation risks tied to tariffs.
According to Charles Schwab's chief investment strategist Liz Ann Sonders, there is a sense of complacency in current market attitudes. She noted that while investor sentiment had reached record lows during the downturn, it has since made a dramatic turnaround. This shift was largely fueled by a surge in tech stocks, including those considered speculative. Sonders cautions that without a negative catalyst, the market could still face downward pressure. She emphasizes that predicting market behavior based on policy announcements is challenging and often unreliable.
The recent pause in tariff implementation between the US and China has significantly boosted stock performance. Last week, this 90-day tariff suspension led several Wall Street strategists to raise their year-end targets for the S&P 500 in 2025. Economists also adjusted their recession probability forecasts for the US economy downward. Nonetheless, consumer sentiment remains at historically low levels, reflecting ongoing concerns about the economic impact of tariffs.
EY's chief economist Gregory Daco expressed concerns about unwarranted optimism in equity markets. He highlighted that elevated tariffs continue to pose a persistent drag on the economy. Daco revised his prediction for a US recession in the next 12 months from 45% to 35%, but he anticipates US economic growth to slow to what he terms "stall speed" by the fourth quarter, with GDP rising only 0.6% compared to the previous year. While the short-term outlook appears more positive, Daco warns that risks remain skewed towards the downside.
Despite the recent market rally, underlying tensions persist. Analysts emphasize the importance of balancing optimism with caution, as geopolitical uncertainties and economic factors continue to influence market dynamics. The interplay between trade policies and market sentiment will likely shape future trends, requiring vigilant monitoring by investors.