empty
12.05.2025 09:18 AM
The Market Will Face Reality

How quickly things change on the financial markets! Before America's Liberation Day, investors viewed the 10% universal import tariff as disastrous. Now, it's seen as the most favorable option. The S&P 500 has climbed 14% from its April lows, erasing all losses since the imposition of the highest U.S. tariffs since the early 20th century. But is this justified, considering the tariff burden remains at very high levels despite being reduced?

Most of the spring rally in the S&P 500 was emotionally driven. Investors were buying the rumor that the April 2 tariffs were the peak and would soon be lowered, making it an "ideal" time to buy stocks. According to Bank of America, the time has come to "sell the fact," meaning the upward movement of the broad equity index is likely over.

This is supported by Bloomberg's model tracking S&P 500 corporate earnings, which has now moved into the red zone, indicating a potential deterioration in financial results. Historically, this does not bode well for equities. In seven previous cases when the index entered the red zone, the S&P 500 dropped by an average of 5.6% over the following 12 months.

S&P 500 Companies' Expected Earnings Trajectory

This image is no longer relevant

This seems quite plausible. Donald Trump believes that reducing tariffs on Chinese imports from 145% to 80% would be "fair"—but only if China reopens access to its markets for U.S. companies. According to Bloomberg, S&P 500 companies on average earn 6.1% of their revenue from selling goods in China or to Chinese companies. Beijing's 125% retaliatory tariffs would significantly worsen their financial performance.

Bilateral trade between the U.S. and China is valued at $700 billion. China has invested $1.4 trillion in the U.S. An escalation of the trade war would be harmful not only to the largest Asian economy, whose exports are already suffering, but also to the U.S. Growing recession risks would exert serious pressure on the S&P 500.

China's Export, Import, and Trade Balance Dynamics

This image is no longer relevant

This image is no longer relevant

In this context, statements from White House officials about progress in U.S.-China negotiations—and a potential agreement whose details may be announced on Monday—sounded like music to the ears of stock market bulls. Still, the market has long been driven by emotion. Is it now time to face the truth? The trade war threatens both economic growth and corporate profits. Against this backdrop, the stock market rally appears excessive.

Technically, on the daily chart, the S&P 500 shows a high probability of forming a bearish reversal pattern known as Anti-Turtles, highlighted by a candlestick with a long upper shadow. A drop below 5635 would trigger a sell signal for the broad index.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

GBP/USD Overview – June 9: Nonfarms Did Not Disappoint

The GBP/USD currency pair also traded lower on Friday and even settled slightly below the moving average line. While we constantly say there are no reasons for the pound

Paolo Greco 04:03 2025-06-09 UTC+2

EUR/USD Overview – June 9: A New Episode of the "American Circus"

The EUR/USD currency pair traded with a slight decline on Friday, which was driven by decent macroeconomic data from the U.S. However, reports from the Eurozone also turned out quite

Paolo Greco 04:03 2025-06-09 UTC+2

EUR/USD. Weekly Preview. Inflation and More Inflation

The upcoming trading week will revolve around American inflation. In the United States, data will be published on the growth of the Consumer Price Index (CPI), the Producer Price Index

Irina Manzenko 02:39 2025-06-09 UTC+2

U.S. Dollar: Weekly Preview

In the United States, as usual, there will be far more interesting events and news than in the Eurozone or the United Kingdom. Economic data will start arriving on Wednesday

Chin Zhao 00:55 2025-06-09 UTC+2

British Pound: Weekly Preview

In the United Kingdom, the news background for the upcoming week will be much more interesting, although I do not believe it will significantly impact market sentiment. The pound continues

Chin Zhao 00:55 2025-06-09 UTC+2

Euro Currency: Weekly Preview

Boredom—pure and simple. That's how the upcoming week looks for the European currency. I want to clarify from the beginning that this review focuses solely on the European news background

Chin Zhao 00:55 2025-06-09 UTC+2

The Market Realized That Money Isn't Everything

Which is stronger — money or power? The answer to this question became clear very quickly. In the conflict between the most influential president in the world, Donald Trump

Marek Petkovich 00:07 2025-06-09 UTC+2

Bitcoin Heads for Conflict

The biggest surprise of June has been the divergence between U.S. stock indices and cryptocurrencies. The S&P 500 and Bitcoin are typically considered risk assets, historically moving hand in hand

Marek Petkovich 00:07 2025-06-09 UTC+2

XAU/USD. Analysis and Forecast

Today, gold maintains a positive tone; however, bulls are acting cautiously, preferring to refrain from aggressive buying ahead of the release of the important U.S. Non-Farm Payrolls (NFP) report

Irina Yanina 15:30 2025-06-06 UTC+2

WTI. West Texas Intermediate. Traders Await NFP

Prices for West Texas Intermediate (WTI) crude oil remain in the middle of a three-day range. Prices are supported by hopes for the resumption of trade negotiations between the U.S

Irina Yanina 11:23 2025-06-06 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.