Stocks have gone from deeply oversold to overbought in record time. Some on Wall Street are wondering if the turnaround has happened too quickly.
Any investor who was bold enough to buy the dip in stocks last month has been quickly rewarded. But has the stock market's comeback been too much, too fast?
Some on Wall Street think so.
"I think what we're seeing now is emotion and people chasing the rally, and this fear of missing out," said Michael O'Rourke, chief market strategist at Jones Trading, during an interview with MarketWatch.
Since its closing low on April 8, the S&P 500 SPX has risen by more than 17% through Tuesday's close, a pace rarely seen over the past 75 years. Analysts at Birinyi Associates have found six examples since 1950 where short-term returns for the S&P 500 were on par with what investors have seen over the past six weeks.
Following each example, returns 12 months later were almost universally strong. The strongest example followed the COVID-19-inspired meltdown in early 2020; following the market's initial comeback, the S&P 500 continued to climb, ultimately tacking on a 46% return 12 months later.
But a lot can happen in a year, and there are still plenty of investors out there who expect stocks could head lower once again in the interim. Even Wall Street luminaries like Paul Tudor Jones have said that they expect the market will revisit its April lows later this year as the economic damage from Trump's tariffs is finally felt.
'Market has raced from oversold to overbought'
Mark Hackett, chief market strategist at Nationwide, pointed out that U.S. stocks are still expensive compared with companies' expected earnings over the next 12 months.
"The market has raced from oversold to overbought in record time, with the S&P 500 now trading at 21x forward earnings," Hackett said in emailed commentary.
The relative strength index for the S&P 500, a popular stock-market momentum gauge, was sitting north of 70 on Wednesday, putting the index squarely in overbought territory. It had fallen below 30 as recently as April 4, before Trump announced his initial 90-day pause.
To be sure, investors inclined to keep on buying have plenty of grist to support their thesis. Trump has walked back many of his most economically damaging tariffs, and few expect the administration will return bring them back, at least not at the levels announced on April 2.
At the same time, many hedge funds and other institutional investors who either sold stocks in April, or sat things out, are likely facing pressure to chase the rally.
Deals with the U.K. and China have shown that the administration is serious about finding an off-ramp. After unveiling a 90-day pause and a dramatic de-escalation of its China tariffs, the U.S. effective tariff rate has fallen to 14.4%, compared with nearly 24% just before, according to data from JPMorgan Chase & Co. To be sure, even 14.4% is higher than where it stood at the beginning of 2025.
Adding to the sense of optimism, much of the hard economic data released so far have shown little indication that the tariffs, and the attendant surge in policy uncertainty caused by their chaotic rollout, have caused any deeper damage to the American labor market, or the consumer's willingness to spend.
But plenty of data from April has yet to be released, and some expect the full extent of the economic blowback could take longer to play out.
"There has likely been damage done, especially to smaller businesses, that it will be difficult to recover from, at least in the short term," said Melissa Brown, managing director of investment decision research at SimCorp.
Tariff agenda remains unsettled
There are still plenty of unanswered questions surrounding the White House's tariff agenda that could still upend stocks. After rampant speculation about whether the "Trump put" was still in play, the administration has shown once again that it is responsive to pressure from the financial markets, be it stocks or bonds.
Trump's plans for the national security tariffs on semiconductors and pharmaceuticals remain a key unanswered question for investors.
The administration has been largely quiet regarding its plans lately, although the Commerce Department was asked to begin a formal investigation at the beginning of April, O'Rourke said. If the administration follows through with substantial levies intended to encourage the re-shoring of production related to sensitive goods, it could send stocks reeling once again.
The confusion here helps underscore a key risk for stocks: The fact that with one Truth Social post, Trump could send investors scrambling out of stocks once again.
Although O'Rourke is beginning to suspect that last month's market chaos may have caused the president to lose his nerve on his tariff agenda.
"Did the president get so spooked on the reaction to his China tariffs that he doesn't follow through here?" O'Rourke wondered.
Then there's the question of the bond market. The yield on the 10-year Treasury note BX:TMUBMUSD10Y quietly crept back above 4.50% on Wednesday, returning to levels seen last month that spooked fears of a bond-market meltdown and helped encourage Trump to announce the 90-day pause on many of the "liberation day" levies. Bond prices move inversely to bond yields, falling as yields rise.
"Yields on the long end are rising, that's going to be our ultimate battle now," said George Cipolloni, a portfolio manager at Penn Mutual Asset Management.
U.S. stocks traded mostly higher on Wednesday, with the S&P 500 marginally, while the Nasdaq Composite COMP was sitting on solid gains. The Dow Jones Industrial Average DJIA and the Russell 2000 RUT were both lower.
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