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28.05.2025 09:47 AM
The Market Has Left the Bad Behind

History repeats itself. Markets breathed a sigh of relief and bought the decline in the S&P 500 after Donald Trump's threats of 50% tariffs on the European Union were replaced by a delay until July 9. The S&P 500 posted its fastest gains since the White House announced a 90-day postponement. Just like back then, investors found hope that the worst might be over—that the economy can withstand the current level of import tariffs, making the strategy of buying the broad index on pullbacks appear valid.

Donald Trump welcomed the EU's decision to schedule further trade talks. The U.S. President expressed hope that the EU will finally open its market to American goods and comply with Washington's demands regarding China. The Republican's social media posts acted as a catalyst for the S&P 500 rally, though they weren't the only factor.

The broad equity index was also supported by declining Treasury yields, positive macroeconomic data, and anticipation of a strong Q1 earnings report from NVIDIA. One of the tech sector's heavyweights is slowly recovering from April's sell-off, and strong results for January–March could boost both the stock and the broader market.

Performance of the "Magnificent Seven" Stocks – Chart Reference

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At first glance, U.S. macroeconomic data seemed mixed. The Conference Board's Consumer Confidence Index saw its largest increase in four years, while orders for business equipment dropped at the fastest pace since October. This is essentially the economy's response to the White House's trade policy.

Consumers appear to have felt relief after the 90-day deferral, while companies began to cut orders in April following a surge in March. Importantly, this slowdown is occurring more gradually than expected—one of the indicators that the U.S. economy remains on solid footing.

However, the tariff policy and the Federal Reserve's passivity raise concerns that things might get worse before they get better. UBS notes the surprising fact that the U.S. has now become a drag on global GDP growth, even though it usually leads during tough times. Add to that the Fed's reluctance to cut rates, and there's cause for concern about America's economic future. Recession cannot be ruled out.

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If the economy continues to cool, investors will likely revisit concerns about elevated valuations in the S&P 500. The P/E ratio for the index stands at 21, compared to a 10-year average of 18.7.

Technical Outlook for S&P 500

On the daily chart, the break above resistance at 5895 became a buy signal. Holding above the fair value level of 5890 would support further long positions in the market. Conversely, a drop below this level and the support at 5815 would activate a 1-2-3 pattern, signaling a bearish reversal and an opportunity to sell.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
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