Don’t Get Wedded To The S&P 500

Is The Bottom In For The S&P 500?

The S&P 500 is 14% off its lows in less than two weeks. That would be a decent return in any year of trading.

So is the bottom in, or is this a bear-market bounce?

Earnings and the Nonfarm Payrolls report will be key elements in play this week.

40% of all stocks in the S&P 500 report earnings this week, and their forward guidance will be in the spotlight. The early signs from companies that reported earnings last week are that earnings are better than feared; however, tariffs are now impacting supply chains.

That is shaping investment decisions, including capital expenditures, hiring plans, and layoffs. While consumer consumption hasn’t softened yet, companies are making decisions based on the assumption that consumption will slow.

The impact on growth, future earnings, and valuations, considered in the round, will likely cap the upside for this year, and the probability of an all-time high is low.

Tariffs

Tariffs continue to cast a shadow of uncertainty over the markets. While the market may be past peak fear, markets and investors continue to exhibit a Pavlovian response to tariff tweets.

While the 90-day pause in reciprocal tariffs was welcomed, it isn’t easy to see how trade deals, which generally take two to five years, can be struck in that same period.

On that basis, at the end of the 90 days, the Trump administration will apply the tariffs, or they may extend the pause to tariffs or even walk back the tariffs.

Tariffs, however, are not the only factor that will shape markets.

Deficits

On the fiscal side, deficits continue to expand.

The expectations for DOGE savings have dropped from $2.5 trillion to $150 billion. Potentially, tax cuts are on the horizon, and a Senate Bill proposes a significant increase in fiscal deficits.

The weight of that fiscal deficit load, coupled with tariffs and a weakening dollar, will impact the economy. On balance, it is likely to be stagflationary.

We maintain that the S&P 500 will likely pull back further and potentially more profoundly in the second half of the year.

Is The Bottom In?

So is the bottom in, or is this a bear-market bounce?

Time will tell, but don’t get wedded to the S&P 500 just yet. The range of outcomes and probabilities is wide, and it’s difficult to envisage a sustainable bull run.

Traders should consider “renting” the market rather than “owning” it. Keep positioning light and have cash available to respond to extreme moves.

S&P 500 Key Levels:

The S&P opens in positive gamma today. The gamma flip zone sits at 5366, the call resistance level is 5580, and the put support is 5155.

On a positive note, the S&P closed above 5480 last week, however, the probability of resistance at the 5700 level remains high.

As noted in our previous post, expect chop consolidation and the S&P to remain range-bound at these lower levels.