The S&P 500 rallied to a one-month high last week, recouped virtually all of the post-April 2, “Liberation Day” declines and traded solidly above the upper range of our 5,100-5,500 range. Moreover, these gains have come on legitimate good news. First and foremost, the Trump administration has seriously backtracked on the April 2 announcement, including a delay, while negotiations take place and exempting major categories of imports (chips, electronics, pharma, autos).
Additionally, the Q1 earnings season (which is not effectively over) was better than feared and most analysts still have 2025 S&P 500 EPS between $260- $270. Finally, while sentiment data has been awful, “hard” economic data has held up well, including Friday’s jobs report. Bottom line, the reality of the past month post “Liberation Day” hasn’t been as bad as feared and the market has recouped those losses.
However, I do not think these events are enough to sustainably propel the S&P 500 forward and I am sticking to my general 5,100-5,500ish range. Here’s why... First, tariff backtracking is now priced in. Short of abandoning all tariffs (which isn’t going to happen), much of the positives from tariff backtracking is now priced into stocks and we could even see a “sell-the-news” move once some trade deals are announced.
The reality is that tariffs will be substantially higher than they were on January 2 and that is a headwind on growth (and at this point, the market is susceptible to disappointing tariff news). Second, Q1 earnings season was better than feared, but that quarter closed on March 31 (i.e., before Liberation Day). Tariffs are a real headwind on earnings.
We don’t know how much of one yet, but we’ll have an idea in early July, as the second quarter will occur entirely post-Liberation Day tariff increases. Risk to 2025 S&P 500 earnings is one direction: Down. It’s just a question of “how much” they get cut. And the lower earnings estimates go, the more of a valuation problem this market will have.
Third, hard economic data has been solid, but again, we haven’t felt any of the real impact from tariffs and uncertainty, yet. Like earnings, the risk to growth is one direction: Slower. Best case is that growth is stable. The worst case is a recession. Better growth is not a realistic case at this point, so it’s just a question of “how much” growth slows. Bottom line, obviously we’ve enjoyed the rally and it is true that the actual events of the past month were not as bad as feared in early April. But not as bad as feared is not good, either, and I think the price action is implying the fundamentals are a bit better than they are in reality.
As such, I continue to view the S&P 500 as mostly rangebound between 5,100-5,500 and maintain my preference for a 50% position in fixed/value for the foreseeable future. This positions us to withstand any downturn while at the same time riding the market up. I believe the fog of the tariffs will lift in the next three months.
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