I can’t be the only parent of college-age kids who routinely texts them, “Have fun. Not too much.” This roughly captures the recent market moment. Investors have loosened up and are deservedly enjoying the resounding six-week market comeback — which takes them ever closer to the hard-to-discern line between harmless fun and reckless indulgence. Bursting from a position of extreme fear and torrid liquidation culminating on April 7, at the point of maximum tariff aggression, the indexes have responded as if the waterfall near-20% sell-off from February’s peak severely overshot fundamental reality. From technical conditions that were “so bad they’re good” after one of the worst starts ever to a year, the S & P 500 has gained 23% from the intraday low, burning up plenty of the accumulated pessimism as fuel and reclaiming the benefit of the doubt for the bulls. The rally has capitalized on clear Trump administration gestures toward trade-war de-escalation, culminating in the retreat last weekend on China tariffs, with the S & P back into the green for the year and just above the spot where it closed the day after the November election. .SPX 1Y mountain S & P 500, 1 year By the second half of last week, the tape had settled back into a low-drama upward grind, the kind of boring-is-beautiful action that often prevails in trending bull markets, including Friday’s late-day levitation to seal a 5.3% weekly gain. Several key hurdles were cleared along the way, the index surpassing its closing April 2 “Liberation Day” level and its 200-day moving average, while last week some pretty stringent breadth and momentum signals fired, the kind that typically imply “escape velocity” from a market low. The Cboe S & P 500 Volatility Index (VIX) saw its fastest drop from above 50 to below 20 in history, finishing the week near 17, firmly in the “normal” zone. Together, these clues suggest that pullbacks to relieve the tape’s current overbought condition should be both expected and well-contained. V-bottom? The cadence of the market’s swift mini-crash decline and rapid recovery of three-quarters of its losses leaves open the chance that this has been another flash, event-driven near-bear market — one of those notorious sell-offs that ended just before reaching a 20% closing loss. I’ve detailed these numerous times in the past , as recently as three weeks ago. 3Fourteen Research chief investment officer Warren Pies nods toward such precedents, noting the decisive bottoms in 1998, 2011 and late-2018 came as policy makers quickly threw a switch to ease conditions. Whether the administration’s recent retreat on skyscraping tariff rates will qualify as such a decisive policy pivot isn’t yet clear, given the lack of final terms. But it can’t be dismissed as a possibility. And at this point, the S & P 500 comeback rivals the early-2019 recovery as the strongest-ever from such an event-driven severe correction. Pies last week upgraded equities to an overweight, seeing a run at the former record highs as logical, citing the persuasive technical evidence, as well as a crucial narrative shift: “For all intents and purposes, the trade war is over. As the dust clears, global tariffs should settle around 10% and Trump will claim victory. This brings clarity to investors, which is always well received.” Is talk of “victory” and “clarity” producing new index highs a sign that we’ve consumed all the skepticism and are moving ahead on pure adrenaline again? Not quite. The broad set-up doesn’t look close to hazardous, giddy excess yet. And in fact, hedge funds and other institutional players are still trying to rebuild depleted equity exposure, while surveys of financial advisors and individual investors have scarcely lifted off deeply bearish extremes. But there are hints that the unleashed-animal-spirits theme that kicked in late last year and was part of every handicappers upbeat 2025 outlook is bidding for a do-over. Jonathan Krinsky, technical strategist at BTIG, flagged an extreme move lower in the put-call ratio last week, evidence that options players are far more interested in playing further upside than buying protection. He sees this as one among several reasons to expect a retreat soon in the S & P back toward the spot where the China-de-escalation pop started (about 3-4% down from here). Robinhood, CoreWeave and eToro Retail-trader playthings Palantir and Robinhood are back to their highs and the stocks have moved in close rhythm on the way to 50%-60% gains since April 7. Social-investing and crypto broker eToro went public last week (after once trying to merge with a SPAC in early 2021), the stock rising more than 20% from the offer price. Stablecoin issuer Circle and self-proclaimed fintech innovators Klarna and Chime have also filed to go public, a sign that “future finance” upstarts are ready to take eager investors’ cash. Brokerage and investment-banking stocks as a group are back to their highs, no coincidence, as the Street rediscovers the bull-market muscle memory. Shares of the month-old IPO and AI-infrastructure play CoreWeave vaulted higher by nearly 60% last week, with stalwart Nvidia ramping by 16%. It’s worth recalling that the initial pullback from the market top was prompted not by trade policy, but a stiff reversal in crowded momentum stocks coinciding with the DeepSeek challenge to the dominant AI-investment theme. While the talk was all about tariffs and a flight from U.S. assets in April, most of the big cloud platforms reaffirmed their eye-watering capex plans and the AI story has refreshed itself, for now, with most of the big players rebuilding toward recent peak valuations. Without endorsing this as a clear guide to the immediate future, it remains interesting how the Nasdaq Composite since the launch of ChatGPT has generally tracked its path from the advent of the first Netscape Web browser in late-1994. And of course, in the two years beyond the scope of this Bespoke Investment Group chart, the Nasdaq went truly wild to the upside, tripling from where it ended 1997 into early 2000. Beyond the somewhat trade-insulated AI/Magnificent 7 segment of the market, any assessment of the risk/reward interplay from here must hinge on how aggressively the market is now pricing in further de-escalation of tariff frictions through benign bilateral agreements. What could derail comeback? Bullish investors can perhaps lean on the fact that the U.S. is not a particularly trade-dependent one, all told. The US. trade deficit with China, being treated by the administration as some desperate emergency, amounts to 1% of U.S. GDP. And China’s exports to the U.S. equal just 3% of its own GDP. Still, there’s no way yet to disprove the idea that the cost and confusion generated by wherever tariff policies land will cause the economy to falter, undercutting already-decelerating job creation and a creaky housing market, making the recent rally seem a false dawn. In fact, in coming weeks we’ll exit the “free pass” window for macro inputs and the data will gain importance as economists try to render judgment on this possibility. As investors who “de-risked” into the April collapse try not to be left behind in the rebound, the S & P 500 has rebuilt its valuation to 21.5-times consensus earnings forecasts for the next 12 months. This after another overachieving reporting season, with 13% annual profit growth, but with some leakage in projected results for the second half of the year. Valuation, famously, isn’t a helpful tactical input and multiples rarely come under severe attack when the Fed isn’t tightening, or recession isn’t nigh. But the P/E is a sort of confidence gauge itself. Perhaps it’s sensible to assume that getting much above 22-times earnings, a threshold last seen in February, should require more than rhetorical gestures toward promised trade deals. Evercore ISI strategist Julian Emanuel on Friday offered that “without more deals/details announced, especially on the ‘Big Beautiful Bill’ in Congress, stocks ‘Party like its 1998’ is set to pause.” That Congressional budget bill, which hit a snag in a committee vote Friday, represents a level of fiscal expansion that is in stark contrast to the administration rhetoric about a fiscal “detox” several weeks ago. Along with a drop in oil process, the tax-cut-driven deficit is being counted on by the market to support the economy against a tariff drag. If the bond market allows it, that is. As much as I resist tying short-term Treasury yield moves to structural Federal budget dynamics, last week the chatter was largely about such matters when the 10-year rose back above 4.5% and the 30-year ticked briefly to 5% again. Buyers rushed in to capture those yield levels, though, just as equity buyers hustled to buy the 50 VIX and the fleeting down-20% print in the S & P 500. For now, stocks are supported to the extent the Big Money still feels under-invested and compelled to pay up to play. Which could, eventually, lead to the kind of fun-seeking that usually precedes a period of chagrined payback.
