Remarkable recovery: Stock market nears historic highs
The ol' S&P 500 is knocking on the door of a new record high, baby! Crazy how in just a couple of months, it was poised for a bear market. Wild ride, huh?
Mixed vibes in the US stock market today. The S&P 500 is practically touching that new record, with just shy of a 1% gap between it and glory. The Dow took a hit, closing down by 0.25%, while the energetic Nasdaq Composite managed a 0.31% gain.
A ray of sunshine for the S&P 500? A ceasefire – fragile, but a ceasefire nonetheless – between Israel and Iran. As the stock market sailed back toward those record highs, investors are itching to know if we can sail any higher or if there's a storm brewing ahead.
Tuesday, the S&P 500 flirted with its all-time high, closing just 0.85% away. But Wednesday, the stock market's mood was flat, as if it were caught in the middle of an identity crisis.
As Middle East tensions ease, the investors' focus turns back to pressing matters like tariffs, earnings, the federal deficit, and President Trump's One Big Beautiful Bill. Even with plenty of obstacles lurking, some Wall Street bigwigs reckon stocks still have some room to grow.
"We ain't predicting a mammoth rally from these levels, but we think the path of least resistance is a slow and steady climb," said Mohit Kumar, smarty-pants economist and strategist at Jefferies.
A rollercoaster year for the market
The US stock market's been on one heck of a wild ride this year. After stumbling into a correction in March and flirting with a bear market in April, the index recovered its losses in May and June, leaving it up more than 3.5% year-to-date.
The S&P 500 started the year strong, hitting record high after record high. It began to tumble in March and April as Trump unveiled his tariff policy. Since then, it's been trying to claw its way back toward a new record high.
After Trump's "Liberation Day" tariffs on April 2, the S&P 500 hit its lowest point of the year on April 8, down 18.9% from its February record high. At its low, the S&P 500 had evaporated $9.8 trillion in market value compared to its record high, according to FactSet data.
But the market rallied sharply in April once Trump backed off his massive "reciprocal" tariffs. Then, it gained 6.15% across May, posting its best monthly gain since November 2023 and its best May performance since 1990. The index is up 3% so far in June, picking up where it left off in May and finally recouping trillions of dollars in market value since April.
Despite only announced trade deals with the UK and a truce in its trade war with China, many investors have been betting that the worst of the tariff confusion is in the rearview mirror.
As the market has recovered, momentum around US tech and artificial intelligence has picked up speed. The Nasdaq 100, an index of the heftiest tech companies in the States, notched a new record high on Tuesday – the first since February.
The tech star of the show? Nvidia, which rose 4.33% on Wednesday and hit an all-time high, eclipsing its previous record high in January. After a 37% nosedive from its January high to its low point in April, Nvidia has since staged a comeback, reaching a new record high.
Tech and AI companies are getting their groove back, helping push the major indexes upward, said Ross Mayfield, an investment strategist at Baird.
"We're going to see a tech bubble if we're not careful, but I don't think we're there yet," Mayfield said. "In the meantime, having those big tech names leading the charge in a US market that's heavily concentrated in that area is a big deal."
But Keith Buchanan, senior portfolio manager at Globalt Investments, thinks the market has climbed to a level that might not be justified given the economic backdrop.
"The market's acting like it doesn't see the clear and present risks associated with tariffs and how they might impact the economy," Buchanan said. "It can do that sometimes in an irrational way."
Where do we go from here?
While Wall Street has shrugged off the Israel-Iran conflict and kept an eye on trade updates, investors are still trying to figure out where tariff rates settle and what other factors might influence markets.
The current average tariff rate would still set the highest tariffs in 90 years, Torsten Slok, chief economist at Apollo, said in a Monday note to investors. That would lead to slower economic growth, higher inflation, and interest rates for a longer period, according to Slok – major roadblocks for an S&P 500 that wants to climb higher.
Geopolitics and second-quarter earnings releases in mid-July are other catalysts that could affect investor sentiment and the market, said Eric Freedman, CIO at US Bank Asset Management, in a Monday note.
"How companies are coping with or passing on tariff price increases draws a lot of investor interest, as they're trying to gauge the future impact on inflation, interest rates, and economic growth," Freedman said.
Kumar at Jefferies said he's looking for how US jobs data holds up this summer and whether Treasury yields rise due to concerns about the deficit, which might drag investors away from stocks.
"The message for investors is to stay invested and avoid reacting sharply to any news or market reaction that could have a short-term negative impact on equity prices," SWBC's Brigati said. "It's nearly impossible to attempt to time the market, so maintaining a disciplined and long-term investing approach is crucial."
Investors are keen to understand if the S&P 500 can continue its slow and steady climb beyond its current near-record high, considering the potential impacts of tariffs, earnings, the federal deficit, and other factors. Despite some Wall Street strategists' optimism, others believe the market may have reached levels that are not justified, given the economic backdrop and potential risks associated with tariffs and interest rates.
In light of the uncertain market conditions and various potential catalysts, such as geopolitics, second-quarter earnings releases, and US jobs data, maintaining a disciplined and long-term investing approach is crucial for investors.
