Rare event could send S&P 500 surging soon

Published:


The stock market has had a rough time following the tariff announcement on April 2. The S&P 500 was down over 4.5% for back-to-back days, including a nearly 6% tumble on April 4. The Nasdaq Composite fell about 6% last Thursday and Friday.

The stock market’s reaction to President Trump’s announcement on “Liberation Day” was due to higher tariffs than expected. Proponents argue that high tariffs are the best tactic for getting companies to rekindle U.S. manufacturing activity. Opponents argue that tariffs will spark inflation, sending the U.S. economy into a tailspin.

Related: Stanley Druckenmiller sends curt 7-word response to tariff war

The S&P 500’s drop after the higher-than-hoped tariffs, including a whopping 54% tariff on China imports, reflects the greater risk that corporate sales and profit growth will shrink this year, risking stagflation or, worse, outright recession.

Those are real risks facing stocks and the economy and shouldn’t be ignored.

However, stocks don’t rise or fall in a straight line, and mounting evidence suggests that the S&P could be poised for a short-term surge after one particularly rare signal flashed on Friday.

The S&P 500’s sell-off triggered a rare oversold signal.Michael M. Santiago/Getty Images

A rip-roaring bull market lifted the S&P 500 by over 20% in back-to-back years in 2023 and 2024, including a healthy 24% gain last year.

The rally was built on optimism that the Federal Reserve would pivot to interest rate cuts amid falling inflation, reversing its hawkish monetary policy stance since it began waging its war against inflation in 2022.

Related: Legendary fund manager sends blunt 9-word message on stock market tumble

Also, investors were emboldened by a flood of spending on artificial intelligence as companies raced to develop their own AI chatbots and agentic AI apps.

Unfortunately, those bullish arguments look flimsier this year.

After cutting interest rates in September, November, and December, the Fed has paused additional interest rate cuts because inflation ticked higher. In February, the Consumer Price Index showed inflation at 2.8%, up from 2.4% last fall.

The pause has removed some of the excitement that lower rates would increase business investment and lower interest expenses on variable debt– bad news for corporate sales and earnings growth, which are the lifeblood of higher stock prices.

AI spending growth could also be peaking. In January, the launch of the Chinese-built Deepseek-R1, a rival to OpenAI’s ChatGPT and Google’s Gemini, shocked everyone when it was revealed it had been developed for only $6 million using cheaper, legacy semiconductor chips, rather than Nvidia’s latest fastest graphic processing units (GPUs).



Source link

Related articles

spot_img

Recent articles