The S&P 500 recently capped-off dinosaur-level achievement with its first-ever close above 6,300 points. This notable achievement comes as the index has notched eight record highs since June 27, marking a remarkable resurgence in the stock market. The S&P 500 had a rough stretch at the beginning of this year, sinking to its lowest point in more than a year in early April. Since then, it has recovered remarkably, up nearly 27%, showing its stability during a prolonged economic turmoil.
The market surge in the S&P 500 has marched on, even with these risks lurking under the surface—such as geopolitical tensions and U.S.-China trade conflict. Retail investors have been a significant driving force behind this momentum, helping propel the index to its recent success. From June 24 to the NFP this past Friday, the S&P 500 has been incredibly flat, with no closing gain or loss greater than 1%. This is symptomatic of a healthy market climate.
Historical Context and Recent Performance
To start the 2022 calendar year, the S&P 500 struggled mightily. In early April, it hovered near bear market territory after President Trump unveiled initial tariffs during his “Liberation Day” announcement. This era sparked fears of waning economic growth with a side of inflation, forcing most investors to prepare for a bear market. The market had snapped back well and fast, enjoying a once-in-a-lifetime “V-shaped recovery.” Second, this is now considered one of the greatest rebounds in the wake of a correction in stock market history.
As Jeff Buchbinder and Adam Turnquist, two strategists at LPL Financial, wrote recently, the rally so far has proved astounding tenacity. Beyond the accomplishments mentioned above, they point out that global markets—S &P 500, strength all around—have been evidently strong all year.
“Perhaps the move by US stocks off the early-April lows is emblematic of the age-old adage about bull markets often climbing a ‘wall of worry,’” – Liz Ann Sonders and Kevin Gordon.
Since early May the broad index has been in an almost miraculous steady rally. Investors are scrambling to reset their expectations regarding what to expect from tariffs and trade policy. Thierry Wizman pointed out that the first announcements of tariffs have been rolled back. This move has taken the sting out of some of the more dire forecasts for growth and inflation.
Investor Sentiment and Market Dynamics
Much more than fundamentals or signals of a broader economic recovery, investor sentiment has driven the current trajectory of the S&P 500. The rally of the past several months has mostly been fueled by individual investors buying stocks directly. Horneman cautioned that markets are too complacent about potential risks, especially now that stocks are historically expensive.
Market participants continue to hold firm in their optimistic stance. Specifically, they think that any future tariff hikes will be short-lived. Tastytrade’s chief market strategist Steve Sosnick noted that the last few weeks’ rally is mostly just based on the confidence of investors. Further, they’re counting on tariffs to be delayed or renegotiated.
“Ever since the president’s about-face in early April that turned the market around, a lot of money has been made basically by investors assuming that these tariffs will be postponed, renegotiated or otherwise watered down,” – Steve Sosnick.
This feeling perfectly captures the larger story playing out across financial markets, wherein positive sentiment reigns supreme while disaster lurks underneath. Ethan Harris elaborated on this dynamic by questioning whether the stock market would become “the trade war vigilante or remain complacent.”
Future Considerations and Economic Outlook
Looking forward, analysts are understandably wary of possible headwinds that may threaten market equilibrium. Although investors are cheered by positive signs, the course ahead remains uncertain as trade relations and key economic indicators are still being closely watched. Harris stressed that despite the concerns, these worries tend to act as roadblocks that markets eventually break through.
“There is no shortage of things to worry about; but that’s the wall markets often climb,” – Liz Ann Sonders and Kevin Gordon.
The possibility of some kind of future deal or accommodation on tariffs is another element dissuading traders from whacking stocks hard. Investors at BlackRock noted that the softening of initial tariff announcements has alleviated some pessimism surrounding economic growth and inflation.
“The prospect that ‘deals’ will be struck thereafter remains a factor, we believe, in keeping traders from selling stocks more aggressively,” – Thierry Wizman.