This Rally Isn’t Just Hope—It’s Got Fuel
Thursday saw the S&P 500, the Dow, and the Nasdaq 100 inch higher. A weaker-than-expected PPI print and soft manufacturing production helped drop Treasury yields, fueling hopes for rate cuts later this year.
Add in steady unemployment claims, a small beat on retail sales, and you’ve got a market betting on a soft landing again.
So what flipped the switch?
Bullish Tailwinds
- Tariff Relief and Trade Clarity
The U.S. and China just agreed to a 90-day rollback on reciprocal tariffs—slashing duties by 115 percentage points. That’s the biggest de-escalation in years, and investors are treating it like a green light for risk. - Stronger Economic Backdrop Than Feared
U.S. economic data isn’t booming—but it’s holding. Jobless claims remain low, wage growth is outpacing inflation, and credit spreads are tightening. Bank of America says if recession fears stay on ice, the market could rally 17% over the next year.
- Tariff Relief and Trade Clarity
- Retail Investors Are Buying the Dip—and Winning
After the April tariff shock, retail traders poured $4.7 billion into the market. Since then, portfolios are up 15%. - Earnings Are Coming in Hot
More than 80% of S&P 500 companies have reported, and 77% have beaten estimates. Earnings growth is running better than expected, but many companies forecasted lower during the previous earnings season, so a beat doesn’t mean growth. - Analysts Are Raising the Bar
Goldman Sachs upped its S&P target to 6,100. Wells Fargo’s got a bullish forecast of 7,007. Their reasons: faster earnings growth, less uncertainty, and tamer inflation.
🌍 Global Markets Are Quietly Leading
Here’s what most investors aren’t watching: International equities have outperformed the U.S. market since April.
ETFs like EFA (Europe, Asia), EM (Emerging Markets), EWC (Canada), and EWG (Germany) have all broken to new 52-week highs. This isn’t defensive rotation—it’s leadership.
While the U.S. is wrestling with soft manufacturing and weak housing sentiment, Europe and the UK are printing strong industrial and survey data, and even Canada’s macro backdrop looks steadier. The trends are clean—and the growth outlook is stronger than people realize.
International ETFs might offer a smoother ride if you want to diversify or avoid U.S.-centric risks (like policy whiplash or tech concentration).
⚠️ The Risks Are Still Real
- Political Volatility
President Trump’s tariff moves have already caused firms like Ford and Mattel to pull guidance. That uncertainty isn’t going away. - Valuations Are Rich
S&P 500 is trading at 22.2x 2025 earnings. Bulls argue 2026 estimates make that more reasonable (20.3x), but it’s still a stretch—especially with 10-year yields above 4.45%. - Tech-Led Fragility
Big Tech continues to do most of the heavy lifting. If even one of those names stumbles, the whole rally could wobble. On the other hand, consider where the market might be if big tech like Alphabet wasn’t going through an existential crisis with AI possibly dethroning their search dominance.
What to Watch Friday
We have a few reports on the radar. The first is Housing Starts and Permits.
And don’t forget about Consumer Sentiment (May):
I’m also tracking the latest Rate Cut Odds for June: still just 8%—but falling inflation could shift that.
Bottom Line: This Rally Has Legs, But the Road Isn’t Clear
Momentum is strong. The data is helping. The sentiment has flipped. But we’re still in a high-valuation, politically noisy, and earnings-uncertain environment. If you’re long, you’ve got wind at your back. Just make sure you’ve got an exit strategy if the headwinds come roaring back.
Diversify. Watch your exposure. And don’t let the “all clear” headlines fool you—this market still has plenty of risk under the hood.
