Relentless Market Upsurge: Potential for Continuous Growth
The Market's Resilient Advance following Correction
Amid lingering concerns, the market displayed a remarkable resilience over the past week, as it continued its upward trajectory. This persistent rally has managed to regain significant ground lost during the correction.
The recovery can be attributed to various interconnected factors:
- Tariff developments and trade negotiations have played a crucial role. After an initial market decline caused by tariff announcements, primarily the "Liberation Day" tariffs, a 90-day halt on tariffs and the initiation of trade negotiations helped alleviate investor anxieties surrounding escalating trade disputes, enabling the market to quickly rebound from earlier losses.
- The U.S. stock market's valuation underwent a recovery during the early-April slump, with valuations reaching a 17% discount compared to fair value. This margin of safety provided a tantalizing opportunity for long-term investors, and the ensuing rally moved valuations closer to fair value, increasing investor confidence and boosting stock exposure.
- Improved investor sentiment and reduced recession fears have also contributed to the rally. Despite remaining cautious, investors expressed less concern about a potential recession in the future, with the percentage of institutional investors anticipating a recession in 2025 dropping from 67% to 45%. This decline in recession worries signifies a more favorable market outlook and provides support for the rally's sustenance.
- Interest rates and Treasury yields have been critical influences on the market. The market's continued advance is sensitive to the 10-year Treasury note's yield, with yields around 4.4% viewed as conducive to ongoing stock market growth, while yields approaching 4.8-5% could impose limits on additional advancements.
- Positive macroeconomic factor dynamics, such as currency carry trades, commodity prices, and successful equity factor performance (e.g., value stocks in Europe and Japan), have further bolstered the rally. The strength in certain currencies combined with declining Treasury yields amid economic uncertainties has lent support to risk assets like equities.
- Prudent investor positioning, with some investors reducing their overweight stock positions to secure profits, signifies measured but growing confidence in the market's long-term sustainability.
In totality, the market rally following the correction was fueled by tariff pauses leading to eased trade tensions, valuation improvements, decreased recession fears, favorable Treasury yield levels, supportive macroeconomic factor dynamics, and calculated investor positioning. Collectively, these factors reversed losses and sustained the upward trend in stocks during this period.
Investors seized the opportunity presented by the market's discounted valuation following the early-April slump, leading to increased stock exposure and boosting investor confidence. Amid this resilient advance following correction, the stock-market has also witnessed significant investments due to the positive impact of tariff pauses, improved investor sentiment, and supportive macroeconomic factor dynamics.
