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1. Bulls reclaimed the 200-day moving average.

The S&P 500 trading above the 200-day moving average is another indication that the trend is turning positive. “This increases the odds that pullbacks will be met with increased demand or buying interest. It changes your strategy and sends the signal that we’re done with the bear market.” Investors are now seeing the easing of trade tensions between the US and China as evidence of the Trump administration tempering their aggressive tariff policies.

Any upcoming short-term dip will likely be bought, not sold, said Craig Johnson, chief market technician at Piper Sandler.

Even so, if history is any guide, a move above the 200-day moving average doesn’t guarantee that stocks could move higher. Nearly two-thirds of 14 S&P 500 bear markets since the World War II started with a double digit decline and recovered to within 2% or higher of the 200-day moving average — only to plunge once again around even lower levels, according to Sam Stovall, chief investment strategist at CFRA.

“The market will always try to hurt you and the “pain trade” is now up as the sentiment has changed and the worst case scenario in form of deteriorating corporate earnings is likely not going to happen,” he said.

2. Only one fed rate cut in 2025.

Economists at JPMorgan Chase & Co. now expect the first Federal Reserve interest-rate cut for 2025 in December as a temporary reduction of tariffs between the US and China helps reduce “the risk that the US economy slips into recession this year.”

They had previously expected the first cut in September. They see the US unemployment rate peaking around 4.8% by the second quarter of 2026 and the bank said that “updated labor market outlook is less demanding of immediate action to stem employment risks for the Fed”

JPM said “recession risks are still elevated, but now back below 50%”.

Meanwhile the US 30-Year Treasury Yield sits at 4.89%, near the highest levels of the last 18 years. Will the rise of bond yield start to hurt the equity market's recovery?

3. Sentiment is greedy again.

The Fear & Greed index rises to 66, Greed, and now trades 62 points above its April 2025 low.

4. Sustained high stock buybacks in Japan.

The aggregate amount of share buybacks in Japan in April (¥3.8 trillion) was more than triple the total of a year earlier (¥1.2 trillion). The sustained high level of buybacks is a sea change in the capital return policy of Japanese firms — i.e., embracing more efficient use of capital via shareholder returns.

Source: JPM

5. Earnings guidance has become meaningless.

The current median expectation by Wall Street is that the S&P 500’s earnings-per-share growth over the next 12 months will be 8.9%, which amounts to a forward price/earnings ratio of 20.6—historically elevated but in line with the average of the past five years.

Here is the problem: Analysts take their cues from the same corporate executives who are now issuing meaningless forecasts, given the fact that nobody knows what the economy will look like in a few months’ time.

In reality, the index could be much more expensive than it looks. Goldman Sachs still sees a 45% chance of a recession over the next 12 months. Yet, after almost entering a bear market on April 8, the S&P 500 is now only about 4% below the all-time high.

Wall Street veteran Jim Paulsen proposes a simple rule: Since the end of World War II, S&P 500 returns have closely followed a logarithmic line upward. A return to the trendline over the next year would still imply a 15% fall.

Source:WSJ

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