After a turbulent eight weeks during which it dropped over 20% into a bear market, the stock market recovered to regain a foothold at the 6,000 level on Friday.
Large round numbers don’t always indicate anything noteworthy for stocks, but they might act as a gut check or a psychological barrier that, if surmounted, could strengthen an already-existing rise.
Since President Donald Trump’s sweeping tariffs announced on April 2 inflicted a blow to the S&P 500 index SPX and other key U.S. market gauges, investors and 401(k)s have made tremendous progress.
Despite the involvement of U.S. courts, which could add another twist to the on-again-off-again tariff dynamic, stocks have continued to rise.
However, Wall Street’s perception that the worst-case tariff situation seemed to be out of the question was generally counteracting tariff concerns. According to Dow Jones Market Data, that has been attributed for contributing to the S&P 500’s more than 1,000-point recovery from its closing low of 4,982.77 on April 8.
However, it could be challenging to have a strong grasp on the 6,000 level.
“The number itself doesn’t matter,” Mercer Advisors chief investment officer Donald Calcagni stated over the phone on Wednesday. According to him, company profits, interest rates, and values are what really count.
Given all the uncertainties ahead, Calcagni stated that equities valuations were “pretty high,” especially in light of the S&P 500’s latest price-to-earnings estimate of about 21.
Focus Partners Wealth senior market strategist Richard Steinberg also sees possible roadblocks to maintaining the 6,000 milestone, particularly with the Federal Reserve, large corporations, and investors all in a state of wait-and-see.
In reference to the Republican tax and spending megabill that is pending Senate action, Steinberg stated, “I think it’s a tough road for the president,” but that we are in “a healthy part of the phase” in terms of opposition to the comprehensive plan.
In the end, Republicans may find that they “can’t always get what you want,” he added. “I think the markets are OK with that.”
Shares of the electric vehicle manufacturer have been at the center of the conflict between Elon Musk, the CEO of Tesla Inc. (TSLA) and, until recently, a top adviser to Trump. It also increased doubts about the budget bill’s future, as Musk referred to it as a “abomination.”
After statistics revealed unexpected weakness in private-sector jobs in May and indications of more possible fractures appearing in what is referred to as the “hard data,” concerns about the economy have been in the spotlight.
However, Friday’s May monthly jobs report came as a surprise to the upside, which caused markets to soar.
According to Calcagni of Mercer, he believes that the stock market is currently 10% to 15% overpriced and anticipates “the next shoe to drop” “on or around July 9.” A 90-day moratorium on certain of Trump’s tariffs is scheduled to end at that time.
In the meantime, Wall Street equities strategists have been actively raising their stock market year-end targets. Barclays became the most recent major bank to raise its S&P 500 objective, moving it up somewhat from 5,900 to 6,050. The S&P 500 was remained 2.8% below its record closing on February 19 as of Wednesday’s close.
Investors should diversify their holdings beyond U.S. equities and bonds, according to Calcagni, who anticipates that the effects of tariffs and the U.S. deficit will have a significant impact on markets in the coming weeks.
He told BourseWatch that the bond market has the “ultimate power” because it will finance all of this debt.
The Republican bill would increase the federal deficit by $2.4 trillion, according to a Wednesday assessment from the Congressional Budget Office. According to an analysis of CBO projections, during the previous 25 years, they have continuously understated real U.S. deficits.
According to Calcagni, “the No. 1 rule is this is not a hero’s market,” and investors shouldn’t own a single stock or even a single asset class. And the second rule? “Yesterday’s safe-haven assets will not be tomorrow’s safe-haven assets,” he stated.
