Weekly Insights: Sentiment Rebounds, Stock Prices Recover—Is It Time for a U.S. Market Reversal?

Performance of Global Equity Indices(in US Dollar)

• Last week, market tensions eased, and U.S. equities resumed their rebound, with the Nasdaq posting a weekly gain of over 6%, leading all major global equity indices. The S&P 500 and Russell 2000 also delivered strong performances, each rising by more than 4%. In contrast, Greater China equities—particularly A-shares dominated by domestic investors—saw limited reaction, as their previous declines had been relatively mild, leaving little room for a technical rebound.

• Notably, Trump softened his stance both domestically and internationally. On the tariff front, he made multiple public remarks indicating ongoing contact with China, signaling potential bilateral negotiations. On the political front, Trump executed a complete U-turn, openly stating that he had no intention of firing Fed Chair Jerome Powell. Meanwhile, Elon Musk formally announced he would step back from Washington politics and refocus on Tesla.

• Key focuses this week include PCE inflation, PMI data, non-farm payrolls, and earnings reports from major tech giants such as Apple and Amazon.

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Key Market Themes

Sentiment Rebounds, Stock Prices Recover—Is It Time for a U.S. Market Reversal?

Over the past week, the three major uncertainties weighing on U.S. equities have shown signs of easing:

• Tariffs Uncertainty: While negotiations between the U.S. and Japan reportedly made no progress, the U.S. and India have released a preliminary agreement. More notably, Trump has repeatedly softened his stance on China, signaling in several remarks that tariff talks with China are underway—although this has been denied by Chinese officials.

• Rate Cuts Uncertainty: There was also encouraging news on the monetary front. Fed Governor Christopher Waller, widely seen as a potential successor to Powell, reaffirmed that the inflationary impact of tariffs is temporary and emphasized that if tariffs lead to significant job losses, the Fed would consider cutting rates.

• Political Uncertainty: Tensions have also eased here. Trump walked back his earlier threats toward the Fed, stating he had no intention of firing Jerome Powell. Meanwhile, during Tesla’s earnings call, Elon Musk confirmed he would step back from DOGE-related political distractions and return to focus on company leadership starting in May.

Buoyed by these positive developments, macroeconomic pressures on the U.S. stock market have eased, prompting the S&P 500 and Nasdaq to rebound sharply, climbing back toward their recent highs.

• Moreover, there was a mild upside surprise in what the Fed classifies as "soft data"—the University of Michigan Consumer Sentiment Survey. Last Friday’s release showed that although consumer confidence declined again and short- and medium-term inflation expectations continued to rise, the figures were better than the preliminary readings and exceeded market expectations. In other words, while consumer sentiment is deteriorating, it’s not as bad as the market had feared—a subtle but meaningful shift.

• Overall, the dominant market narrative remains centered on tariffs, with earnings and profitability playing more of a supporting role. For instance, Netflix posted excellent earnings, but its stock rallied only after an initial fade, and only once tariff-related tensions eased. Similarly, Tesla’s results came in worse than expected, but Elon Musk’s announcement of his return to operational leadership was enough to fuel a strong post-earnings rally. After two such events, the market has all but confirmed what we’ve long suspected: Trump’s pressure point is Treasury yields. Whenever long-term U.S. bond yields approach 5%, he steps in with market-friendly signals to prevent further escalation in borrowing costs.

• This creates a particularly delicate market environment. The once-dismissed “Trump Put” now seems unexpectedly active, while the long-relied-upon “Fed Put” appears to be temporarily sidelined. As Fed Governor Waller noted last week, the true economic impact of tariffs likely won’t be felt until the second half of the year. As we head into a period of inflation and employment data releases, the Fed’s internal consensus may start to shift more quickly. In any case, it seems clear that the worst of the short-term uncertainty is now behind us.

• That said, this doesn’t mean the fragility of the U.S. equity market has been fundamentally reversed. Last week’s gains in the S&P 500 and Nasdaq should still be viewed as a short-term oversold rebound. On a broader scale, markets remain within a volatile trading range, and the height and duration of the bounce will depend entirely on the trajectory of tariff negotiations, the Fed’s stance on rate cuts, and earnings guidance.

This week marks a critical inflection point, with several major catalysts on deck:

• Wednesday: PCE inflation data

• Thursday: PMI reports

• Friday: Non-farm payrolls

• Plus, earnings from tech giants including Apple, Amazon, and Microsoft

If inflation comes in below expectations, employment data shows softness, and these major tech companies deliver solid spending and forward guidance, then U.S. equity indices could have another 10% upside in the near term.

• From a long-term perspective, the market has yet to fully price in the impact and consequences of the tariff shock, and there remains significant uncertainty around how this situation will unfold. Currently, the probability of the U.S. entering a recession within the next 12 months has risen to 40%. According to UBS historical backtests, if the U.S. experiences only a mild recession, the S&P 500 typically declines by around 11%. However, if it turns into a deep recession, the average drop balloons to 34%. Similarly, Bank of America (BofA) maintains that unless all three of the following occur simultaneously—a successful trade deal with China, Fed rate cuts, and resilient consumer spending—then "sell the rally" will likely become the dominant trading pattern for U.S. equities going forward.

• We share a similar outlook. The US stock market has rebounded and fluctuated in the short term, and the magnitude may be significant, but the medium and long term outlook remains very unclear. As long as Trump stays committed to his goals of manufacturing reshoring and national debt reduction, the weak dollar will remain a structural trend. In that environment, U.S. equities may continue to underperform over the coming years, while emerging markets—especially those with improving fundamentals—could offer stronger investment opportunities.