Stocks Bounce Back from Tariff Pain, but Trade News Remains a Wildcard
Stock Markets Show Resilience Amid Ongoing Trade Policy Uncertainty
The US stock market has shown signs of resilience in recent weeks, with equities edging higher over the past two weeks as investors digest a sharp rally that has brought the benchmark S&P 500 within 3% of its February record high. This rebound is largely driven by easing fears about the economic fallout from tariffs, which had previously caused significant market volatility.
One key factor contributing to this resilience is the growing optimism among investors and strategists that the worst of the tariff-related shocks has passed. Angelo Kourkafas, senior investment strategist at Edward Jones, notes that markets, consumers, and businesses all have a vested interest in achieving clarity on trade negotiations sooner rather than later. This critical summer period may test the market’s momentum as key deadlines approach.
The S&P 500 has surged back nearly 20% since falling to the brink of confirming a bear market on April 8, erasing its losses for the year. Near the halfway mark of 2025, the index is now up 1.5%. While Trump’s tariffs remain a risk, the market no longer perceives them as "this big outlier event," according to Keith Lerner, co-chief investment officer at Truist Advisory Services.
Several firms have become more upbeat on the outlook for equities, with RBC Capital Markets and Barclays lifting their year-end targets for the S&P 500 this week. Deutsche Bank strategists also boosted their year-end target to 6,550, about 10% above current levels, citing a less severe expected tariffs hit to corporate profits.
Market Rebound Driven by Easing Fears
The market’s rebound is largely driven by easing fears about the economic fallout from tariffs. The Cboe Volatility Index, an options-based measure of investor anxiety, reached 52.33 in early April, its highest closing level in five years, but has steadily receded and hovered at 17.6 on Wednesday, around its long-term median.
In another sign, the average daily range of the S&P 500 has fallen to about 75 points, on a 10-session basis, about one-third the size from April during the height of post-Liberation Day volatility. The S&P 500 has also traded above its 200-day moving average – a closely watched trend-line – for about three weeks.
Adam Turnquist, chief technical strategist for LPL Financial, notes that there is growing technical evidence suggesting this recovery is real. Options data also suggests growing bullishness, with on average about 0.84 S&P 500 call options traded daily against every put contract traded over the last month, the most this measure of sentiment has favored call contracts in at least the last four years.
Tariff Uncertainty Remains
While investors and strategists are cautiously optimistic about the market’s resilience, some remain wary of market complacency. Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, notes that there is still just so much uncertainty surrounding trade policy.
The talk of the acronym "TACO" – Trump Always Chickens Out – has spread on Wall Street as a rationale for why markets should not fear harsh tariffs because many believe they will likely be walked back. However, some investors are worried about a backlash from the president.
BCA Research strategists said they were wary of relying on a TACO backstop, noting that trade tensions may have peaked but still sporadically rise from current levels. Stock valuations continue to swell, with the S&P 500’s forward price-to-earnings ratio reaching 21.7, its highest level since late February and well above its long-term average of 15.8.
Chuck Carlson, chief executive officer at Horizon Investment Services, notes that stocks are at a more vulnerable level, making them sensitive to what is perceived as negative news.
