Three Weeks! S&P 500 Exits Correction Territory as Wall Street Remains Cautious About Rally Prospects
Recently, the U.S. stock market has exhibited remarkable changes, with major indices posting gains across the board this week. The S&P 500, in particular, has stood out. Since hitting its closing low on April 8, the index has surged nearly 11% in just three weeks, successfully exiting correction territory—a move that has captured widespread attention across the market.
As a crucial barometer for both U.S. and global capital markets, the S&P 500’s trajectory has always been closely watched by investors. The swift rebound from its correction can be attributed to multiple factors. The shift in market sentiment primarily stems from two key developments: First, U.S. President Donald Trump denied any intention to dismiss Federal Reserve Chair Jerome Powell. Given the Fed’s pivotal role in shaping monetary policy and its significant impact on the U.S. economy and financial markets, expectations of Powell’s continued leadership have reassured investors, bolstering confidence in policy continuity and stability. Second, the U.S. government signaled progress in trade negotiations. Trade tensions have long loomed as a Sword of Damocles over both the U.S. and global economies, so positive developments in trade talks have injected optimism into the market, brightening investor expectations for corporate earnings and economic growth.
However, despite the S&P 500’s impressive rebound, Wall Street remains cautious about the rally’s sustainability. From a macroeconomic perspective, while the U.S. economy continues to exhibit growth, underlying risks cannot be ignored. Although the labor market remains strong, sluggish wage growth may constrain consumer spending power, potentially weighing on corporate revenues. Meanwhile, while the inversion of the U.S. Treasury yield curve has eased somewhat, the earlier inversion’s recession warning signal has not entirely dissipated, keeping Wall Street investors on high alert.
From an earnings standpoint, although progress in trade talks may provide a boost to future corporate profits, current earnings growth faces multiple challenges. The technology sector, a heavyweight in the S&P 500, grapples with intensifying global competition and innovation bottlenecks. Traditional manufacturing firms, meanwhile, contend with trade friction and volatile raw material prices, complicating cost control and casting doubt on the sustainability of profit growth.
On the policy front, despite Trump’s denial of plans to oust Powell, uncertainty lingers over the Fed’s future monetary policy direction. On one hand, subdued inflation data alleviates immediate pressure for rate hikes; on the other, lingering economic risks fuel speculation about potential further rate cuts. This policy ambiguity complicates Wall Street’s assessment of market trends.
Moreover, the broader backdrop of slowing global growth casts a shadow over the U.S. stock rally. Europe’s sluggish economic recovery and emerging markets’ struggles with trade tensions and debt risks create a globally interconnected challenge, making it difficult for the U.S. economy to remain insulated. Should global economic conditions deteriorate further, the U.S. stock market could face renewed pressure.
In summary, while the S&P 500 has exited correction territory in the short term, demonstrating strong rebound momentum, Wall Street remains cautious about the rally’s prospects due to macroeconomic, earnings, policy, and global economic uncertainties. The path ahead for U.S. stocks remains fraught with variables, requiring investors to closely monitor economic data and policy developments to make informed decisions.
