Good morning,
Over the last 9 trading days, the S&P 500 has surged nearly 10%, effectively erasing the losses incurred after President Trump’s “Liberation Day” tariffs in early April. This rebound has been fueled by a combination of factors, including a robust April jobs report, strong corporate earnings—particularly from tech giants like Meta and Microsoft—and reports of easing trade tensions. And lest we forget, the record-tying low sentiment reading around what will now be known as the market’s “Trump Tariff Tantrum.”
The current rally in the S&P 500 Index is the strongest in over 20 years. An objective observation of the market today, trying to look through all the emotion that accompanies a severe spike in volatility, leads to the following question – Is this a bear market rally or something better? The April sell-off did enough damage to the technical mosaic – the market’s message – to suggest a bear market has begun. However, reversals from 100-year record-tying severely oversold conditions leading to a best in 20yr rally (or more, it may not be over) cannot be ignored. It is a powerful offset to the bear market signals.
The fundamental key to this signal paradox is likely whether we go into a recession. There is little hard evidence so far. “Soft” survey data is clearly warning though, with Michigan consumer sentiment giving a sell in February and Consumer sentiment plunging in April.
As a risk manager, only even odds that we’re enjoying a bear market rally and only even odds that the economy will slow into a recession would warrant a defensive allocation in portfolios. I believe the odds for a bear market in a recession are much higher than even. See you Friday – extraordinary events notwithstanding.
Be well,
Mike