Valuations Cool, but Uncertainty Still Runs Hot
Let’s start with a rare silver lining. After peaking at a forward price-to-earnings ratio of 23 in November 2024, the S&P 500 has cooled to 18. That puts it under the 5-year average (20.58) and the 10-year average (20.07). So while stocks still aren’t cheap, they’re no longer priced like it’s all blue skies ahead — and that’s progress.
History tells us the 18–20 P/E range is more likely to produce flat returns than losses over the next 12 months. That’s not exactly exciting, but it’s far better than the setup we had a few weeks ago.
Sentiment Hits the Panic Button
Fear is everywhere. CNN’s Fear & Greed Index just tipped into “Extreme Fear.”
Meanwhile, the AAII’s sentiment survey found that nearly 62% of investors expect stocks to fall over the next six months — the most bearish reading since the 2009 bottom.
Even the options market is flashing warning lights. The put/call ratio hit 1.2, a level that historically lines up with short-term relief rallies. Meanwhile, the VIX surged from 20 to above 50 after the latest tariff headlines — an explosion of volatility that usually signals selling exhaustion is close.
RSI Says We’re Oversold — Deeply
The SPDR S&P 500 ETF Trust (SPY) posted a Relative Strength Index (RSI 14) reading of 23 on April 4 and again on April 7. For reference, 30 is the usual oversold threshold. A reading in the low 20s is rare — we haven’t seen it since the COVID crash in early 2020. Prior low-RSI events in September 2022 and October 2023 sparked near-term rebounds.
That doesn’t guarantee anything, of course. Stocks can always go lower, and oversold can stay oversold. But historically, RSI in the low 20s often marks turning points, or at least temporary floors.
So, What’s Next?
Short term: A bounce wouldn’t be surprising. Between fear, volatility spikes, and deep RSI levels, the ingredients are there.
Medium term: It all depends on the policy path. If tariffs keep rising and the White House stays vague about its goals, inflation fears will grow. If consumers and companies pull back spending, we’re staring down stagflation — or worse, recession. Let’s not forget that other countries are coming out against American products in addition to tariffs. We’ve seen France mention a boycott of McDonald’s (MCD), Coca-Cola (KO), and Tesla (TSLA).
While most Americans might not care, France is among the top five markets for MCD and KO, following the U.S. Investors aren’t likely to be happy during the next earnings call if these companies mention losing out in sales in their top regions. That affects the major indices, and that continues to hurt 401K and pension plans around the country that hold these stocks.
There is talk out of Europe about replacing Mastercard (MA) and Visa (V) with something local. Again, losing sales in a top revenue-generating region doesn’t bode well for these companies and the market at large.
That leaves us with the market’s erratic behavior, with intra-day swings, gap downs, and everything in between.
This market isn’t just reacting to earnings or data — it’s reacting to what it doesn’t know. Until that changes, rallies will be fragile, and the floor might keep shifting.
