The S&P 500 is nearing a record high, a stark contrast to just two months ago when it was teetering on the edge of a bear market. On Wednesday, the index was less than 1% away from this milestone, while the Dow Jones fell by 135 points, or 0.31%. The S&P 500 experienced a notable rebound, rising 2.1% over two days, driven by a fragile ceasefire in tensions between Israel and Iran. Investors are now contemplating whether there is still upward potential for stocks or if obstacles lie ahead.
Recent trading showed the S&P 500 closed only 0.85% from its peak. As geopolitical tensions ease, focus is shifting back to economic fundamentals, including tariffs, corporate earnings, and fiscal policy orchestrated by President Trump. Even amid potential inflation spikes from increased tariffs in the coming months, some analysts believe stocks could continue to rise, albeit slowly.
This year has been tumultuous for the US stock market. After a decline into correction territory in March and nearly entering a bear market in April, the S&P 500 has managed to recover its losses, now up over 3.5% for the year. It had begun the year at record levels, achieving its last peak in February.
The decline began with the announcement of new tariffs, leading the S&P 500 to its lowest point this year by early April. However, following the retraction of significant tariff proposals, there was a sharp recovery, with the index climbing 6.15% in May, marking its best monthly performance since November 2023.
While the Trump administration has established a trade agreement with the UK and a tentative truce with China, many investors remain hopeful that tariff-related uncertainties are largely resolved. The market has shown a resurgence in tech stocks and those related to artificial intelligence, while the Nasdaq 100 also reached an all-time high, showcasing the sector’s recovery.
However, some experts caution that the current market level may not be justified given existing economic challenges. Concerns about future profitability and the potential irrational nature of market responses to tariff implications persist.
Looking forward, investors are grappling with questions about the effects of current tariffs and other economic factors on the market’s trajectory. As second-quarter earnings reports roll out in mid-July, they will provide insight into how companies are managing inflationary pressures related to tariffs.
Analysts suggest a prudent investment approach is to stay invested rather than react hastily to short-term market fluctuations, emphasising the importance of a disciplined, long-term strategy.