The S&P 500 (^GSPC) has recouped all of its “Liberation Day” losses with help from the longest winning streak for the benchmark index since 2004.
But now, with the S&P 500 up about 14% from its April 8 low, Wall Street strategists aren’t confident that a smooth path higher for the index will continue.
“For now, fundamental and macro concerns are pushed out but not alleviated,” Citi equity strategist Scott Chronert wrote in a note to clients.
To Chronert’s point, there have been incremental signs that the US is nearing trade deals in recent weeks, but none have actually been announced. This leaves Trump’s tariffs as a consistent variable in the investing landscape.
Another key concern is the risk of recession. While the April jobs report released Friday showed the US labor market remains on solid footing, other indicators have continued to flash signs of a cooling jobs environment. This comes amid a wave of other worse-than-expected economic data.
Read more: What is a recession, and how does it impact you?
The confluence of issues that remain unsolved is prompting strategists to recite a familiar refrain over the past month: Things look OK right now, but there is significant concern about what happens next.
“While the market rebound is welcome, it’s no reason for complacency,” JPMorgan Asset Management chief global strategist David Kelly said. “Despite Friday’s jobs numbers, the economy is losing momentum and will, more likely than not, slip into recession without real progress on the trade front or near-term fiscal stimulus. More importantly, if, in the long run, Washington policies result in greater trade barriers, less immigration and even larger budget deficits, then any economic recovery could be anemic, with long-term real GDP growth slipping to well below 2%.”
There have been some signs of strength in the fundamentals during the rally. With 72% of S&P 500 companies done reporting earnings for the first quarter, the index is pacing for year-over-year earnings growth of 12.8%, above the 7.2% analysts expected on March 31, per FactSet data.
RBC Capital Markets head of US equity strategy Lori Calvasina wrote in a note to clients on Monday that companies that are beating earnings-per-share forecasts are seeing larger-than-normal upside moves in their stocks, suggesting “earnings dynamics” have played a role in the rally along with optimism around US trade deals.
“This [earnings] phenomenon does appear to be losing some intensity since mid-April, suggesting to us that the US equity market may soon demand another catalyst to keep the recovery going,” Calvasina wrote.
