It has hardly been a month since President Donald Trump’s aggressive tariff measures caught international investors off guard. However, U.S. stocks have already recovered remarkably.
According to Dow Jones Market Data, the S&P 500 ended its longest winning run of eight days since November 2020 on Thursday.
There is probably something to rejoice about for many novice traders who took advantage of the volatility and purchased the drop. Regretfully, a large number of their Wall Street colleagues seem to have missed out.
As stocks plunged lower in April, institutional investors were much less keen to return to the market, according to data given by Wall Street (GS) prime-brokerage desks. To increase their profits, individual investors, however, rushed into riskier products like leveraged ETFs rather than simply buying.
This disparity led Nomura markets expert Charlie McElligott to say in a statement provided to MarketWatch on Thursday that the recovery has been “the scenario that nobody wanted” following a solid set of earnings from Microsoft Corp. (MSFT) and Meta Platforms Inc. (META) that contributed to further gains for the Nasdaq Composite COMP.
McElligott claimed that the market’s abrupt reversal had taken many Wall Street experts by surprise, especially those working for systematic funds with well-known risk-management strictures. Despite their lack of trust in the macro backdrop, they are currently rushing to catch up.
Simultaneously, individuals who dared to purchase during one of the most turbulent months in recent history have been richly rewarded: Since its closing on April 8, the day before Trump declared a suspension on some of the tariffs that sparked one of the index’s greatest single-day increases in history, the S&P 500 SPX has increased by almost 12%, according to FactSet data.
It’s likely hurting other people who missed it. Looking back, a number of trustworthy signs indicated that a recovery in the stock market was most likely imminent. However, it was undoubtedly a step in the right direction when Trump backed off from some of his declared tariffs and backed off from his threats to fire Federal Reserve Chair Jerome Powell.
“We were just grossly oversold,” RIA Advisors portfolio manager Michael Lebowitz told MarketWatch on Thursday. “There are still a lot of people who like to buy the dip.”
According to Lebowitz, technical indicators such as the moving average convergence/divergence, or MACD, and the relative strength index, or RSI, indicated that equities were a good investment when they revealed the S&P 500 had entered oversold territory.
Their buy signal wasn’t the only contrarian indicator to glow. Extreme pessimism has been evident for weeks in the weekly sentiment indicator published by the American Association of Individual Investors. Previous big market bottoms, such as March 2009, have coincided with times when respondents were as pessimistic.
Another indicator was the Cboe Volatility Index VIX, or simply the VIX. For the first time since 2020, the index closed over 50 during the brunt of the selling.
In an interview with Bloomberg News last month, Treasury Secretary Scott Bessent stated that the fear gauge had probably reached its top. That has proven to be a prophetic call thus far.
According to research, Trump’s initial decision to halt some of his tariffs contributed to one of the largest daily recoveries in the history of the S&P 500 on April 9. Lebowitz, however, thinks that the rise has mostly been technical in character because it has occurred during the last eight days in the absence of any significant progress on the tariff front.
Some attributed the recovery of investors’ confidence in the market to the advent last week of a Zweig Breadth Thrust, a technical indicator that has a solid track record of predicting above-average market gains.
Another piece of information that might have encouraged dip buyers: As the table below illustrates, history demonstrates that quick market selloffs have frequently led to equally quick reversals, according to Ryan Detrick, chief market analyst at Carson Group.
Markets aren’t giving the all-clear just yet, to be sure. The S&P 500 has yet to recover its 200-day moving average, as noted by Lebowitz. Since Trump’s trade war is probably far from over and the extent of the possible economic repercussions is still unknown, he anticipates that equities may oscillate between this crucial trend line and the lows from April.
According to Dow Jones data, U.S. stocks ended Thursday’s trading session higher, with the S&P 500 up 0.6% to 5,604.14. At 40,752.96, the Dow Jones Industrial Average DJIA increased by 83.60 points, or 0.2%. In contrast, the Nasdaq rose 264.40 points, or 1.5%, to 17,710.74.
