Daily Stock Market Articles

Getting Back to Even
Fri, May 2, 2025

It's been exactly a month since "Liberation Day" on April 2nd when President Trump announced massive reciprocal tariffs on the rest of the world. At its intraday low on April 8th, the S&P 500 ETF (SPY) was down 14.7% from its closing level on April 2nd. Since that low, SPY has now rallied 17.4%, and as of this morning, SPY has fully recovered all of its post-Liberation Day declines.



Below is a look at the performance of key index and sector ETFs since the close on Liberation Day (4/2). Technology (XLK) is now the best performing sector since 4/2 with a gain of 2.9%, followed by the Nasdaq 100 (QQQ), Semis (SMH), and Industrials (XLI). On the downside, the Energy sector (XLE) has been by far the biggest laggard with a decline of 12.7%.



We'd note that even though the stock market has fully recovered its post-Liberation Day drop, investor sentiment remains extremely bearish. This week marked a record 10th consecutive week where AAII Bearish Sentiment was above 50%. The prior record was seven straight weeks back in 1990. Will the bulls finally re-emerge next week? We won't find out until next Thursday when the weekly AAII numbers get posted.





Back in early 2023, we created the Bespoke AI Basket to track key stocks in the space. We broke the basket into two sub-groups: one for AI Infrastructure stocks and one for AI Implementation stocks. The AI Infrastructure basket contains stocks that power the AI Boom like NVIDIA (NVDA), while the AI Implementation basket contains stocks like Meta (META) that are implementing AI to boost the user experience and increase margins and productivity.

As shown below, the AI Implementation basket has outperformed the AI Infrastructure basket since the end of 2022 by quite a wide margin.



There have been periods of significant out- and underperformance for each basket, however. Below is a look at the ratio between the AI Infrastructure and AI Implementation baskets. When the line is rising, AI Infrastructure is outperforming, and vice versa.

The first half of 2024 saw AI Infrastructure outperform quite dramatically, but since mid-2024 for about the last year now, AI Implementation stocks have been outperforming. Are we now due for a reversal that sees AI Infrastructure start to bounce again?

 

S&P 500 performance after past 9-day or longer winning streaks mixed

Today (May 2) S&P 500 logged its first 9-day winning streak since November 2004. This will be just the 43rd time S&P 500 has been up nine days in a row or longer going back to 1930. Compared to past 9-day streaks, the current streak’s gain of 10.25% stands out as the largest. In fact, it is the largest gain of any streak, lasting nine or more trading days. Unfortunately, when the current daily winning streak comes to an end, S&P 500 performance over the next three months is not likely going to be as robust.

S&P 500 performance following the 42 previous 9-day and longer daily winning streaks tended to be weaker than average, especially during the following month. Past winning streaks appear to have pulled performance forward. One week after past streaks ended, S&P 500 was mixed with an average decline of 0.10%. Two weeks later there was modest improvement with gains occurring 57.1% of the time. S&P 500 performance continued to gradually improve over the next month, three months, and 1-year.

 

About Last Month


“It is human nature to overestimate risk and underestimate opportunity.” Jeff Bezos, Executive Chairman and Former CEO, Amazon

What an end to April, and May is off to a strong start as well. In fact, the S&P 500 finished higher the last seven days of April, trying the longest win streak to end that month ever. It didn’t end there though, as stocks gained the first two days of May too, for an incredible nine-day win streak, the longest since November 2004.

How Large Was April’s Reversal?
In the end, the S&P 500 fell less than 1% in April, but it was anything but easy for investors. In fact, during the second week of April stocks were down more than 20% intraday off of the February peak, causing historic worry and bearishness. Just in April, the S&P 500 was down more than 11% for the month at the lows, but then managed to close up more than 10% off of those lows. The last time we saw a reversal anything like that was in March 2020 and the lows of the Covid bear market.

We found six other times the S&P 500 was down at least 10% in a month, but finished more than 10% off the monthly low. Potential weakness or choppiness is normal in the near term, but a year later stocks have never been lower, up more than 22% on average. As we discussed last week, there were multiple rare bullish signals and the lows for 2025 are likely in, but this doesn’t mean it will be straight up and some back-and-forth volatility would be perfectly normal.



Where Did the Bulls Go?
We’ve noted many times over the past month that sentiment in many cases was about as bearish as we’ve seen and that was potentially a bullish driver on any good news. Well, we saw the reversal last week, but we continue to see signs that overall sentiment is still quite dour, which again is bullish from a contrarian point of view.

Barron’s over the weekend released their latest Barron’s Big Money poll (which comes out in October and April) and it showed the most bears in the poll going back nearly 30 years! Compare this with six months ago when bulls were everywhere and the masses expected continued explosive growth for investors in the US, and sure enough that hasn’t worked, as the US is one of the very few stock markets this year that is down on the year. Well, here we are six months later and we view this complete 180 as another reason to expect potentially better times ahead.



When Do Nine-Day Win Streaks Happen?
Social media was abuzz that long win streaks (like we just saw) only happen during recessions or bear markets. Well, the good news is that simply isn’t true. It really upsets me that people with large followings simply lie, knowing it isn’t true, which leads many average investors to make poor investment decisions. All we can do around here is continue to share honest research, trying our best to combat those trying to sell a newsletter.

Here I found all the months that had a nine-day win streak for the S&P 500 and how often the strength occurred in a recession. Well, we were told this happens 80% of the time, but using the actual data showed only three times out of 29 did a nine-day rally take place in a recession. Be careful who you follow out there.



Another Clue the Lows Are in for 2025
The S&P 500 fell 18.9% from the February 19 peak to the April 8 lows, in what we are calling a near-bear market. Trust me, if you were there it sure felt like a bear market, as investors were battered and bruised for sure.

The good news is stocks have recovered half of that near-bear market, potentially a good sign. In fact, looking at the past 16 bear or near bear markets only once did stocks go on to make new lows after half of the bear market was recovered. Of course, that was the very last time, in 2022, but this is still a good sign. Lastly, a year later stocks were higher an incredible 16 out of 16 times after recovering half of the bear (or near bear) market.



Think about what we’ve seen in the last month:

• Widespread over-the-top negativity
• Strong buying thrusts (discussed recently)
• A historic reversal in April
• With some good news on the trade front sprinkled in

 

Typical Post-Election Year May

Post-election year May historical performance is impressive when compared to the recent 21-year trend. Early strength has lasted until around the sixth trading day with average gains exceeding 1%. A brief period of weakness has occurred between the sixth and ninth trading days, but afterwards the trend has been briskly higher through the end of May.

Should the market track the more bullish post-election-year May seasonal patterns, the major indexes could be pushing through their respective 200-day moving averages sometime after mid-month.

 

Why This Rally Is Like a Beach Ball Under Water


“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Peter Lynch, famed mutual fund manager

What a few months for investors. After crashing more than 10% only two days after Liberation Day on April 2, fear and panic were in the air. As bad as things felt then, stocks have come soaring back. Like a beach ball under the water, once you let go and it gets some momentum, it is amazing how quickly it moves higher.

Here’s a nice chart that shows the rolling one-month return for the S&P 500. At the lows on April 8th the S&P 500 was down more than 12%, for one of the worst monthly declines ever. The next month? Stocks soared more than 13%. As we said then and we say now, the best and worst days nearly always happen near each other, so if you sell after some bad days, you’ll miss the inevitable strong days.



Monday Was A Really Good Day
Stocks soared yesterday, as US and China tariffs were reduced way more than just about anyone expected. President Trump himself on Friday said tariffs could drop to 80%, so the move all the way back down to 10% was taken extremely kindly by investors.

The Dow gapped up more than 1,000 points for only the third time in history. What was more impressive though was that stocks were quite overbought near-term heading into Monday, yet closed near the highs of the day. Honestly, I would have expected some afternoon weakness after the huge gap up, but that wasn’t what we saw.

A few weeks ago, I shared a few reasons to think the lows for the year were in, which wasn’t very popular at the time, but now it is even more likely. Incredibly, the S&P 500 is officially flat on the year and now less than 5% away from new all-time highs.



Some Good News for the Bulls
Last Thursday officially marked one month from the April 8 S&P 500 lows, and as bad as things felt back then, they’ve felt pretty good since. The S&P 500 soared more than 13% over the ensuing month. This was the best gain over a one-month period since we came off the pandemic lows in March 2020, and huge monthly gains like this are perfectly consistent with potentially higher prices going forward.

Here’s the good news. We found 13 other times stocks gained at least 13% over a one-month period and the future returns were very strong. In fact, only twice were prices lower a year later and that was during the early 2000s tech bubble bear market. The past four times this happened saw at least double-digit returns going out the next year. The bottom line is a huge monthly surge like we just saw is yet another clue the lows for 2025 are likely in and better times could be coming for investors.



Some Good News Part 2
Additionally, yesterday saw another potentially very good signal, as more than 55% of the components in the S&P 500 reached a 20-day high. Affectionately known as a deGraff Thrust Indicator, discovered by Jeff deGraff over at RenMac, this rare thrust is a sign of extreme strength with many stocks making a new monthly high at the same time. This is yet another in the growing list of potentially bullish developments suggesting the worst is over and better times in 2025 are likely.

Looking at the past 30 signals, strong performance going out a year is perfectly normal. Incredibly, the S&P 500 has been higher a year later 29 out of 30 times, yet another clue the bulls might have some fun going forward.

 

3 Takeaways from a Near-Bear Market


It may be a little early to do a post-mortem on the February 19 – April 8, 2025 near-bear market, but maybe it’s not too early to find perspective that we didn’t have “in the moment.” Despite the unusual driver of this particular near-bear market, really just a single actor (who also gets credit for the rebound if he gets blamed for the downturn), the market itself has acted fairly predictably, and maybe that’s the main takeaway. Every downturn has its own character and will not simply hew to history, but knowing and understanding market history, especially in the heat of the moment, is a powerful tool.

Diversifiers Work, Especially If You Diversify Them
I’ve shared the table below a few times now. It shows which diversifiers worked (or didn’t) in major drawdowns since 1998’s 19.2% S&P 500 decline. What’s worked best has depended on the market environment. Most generally, bonds have fared well and commodities have fared poorly in downturns, but sometimes it’s been dramatically different. (It makes sense that commodities have underperformed — stock downturns often happen during periods of economic weakness, when lower demand weighs on commodity prices.)

If the most recent near-bear market is indeed in the books, then intermediate Treasuries will win best diversifier this time around for the limited number of assets in the chart. Intermediate Treasuries generally work fairly well when long Treasuries do, but long Treasuries’ higher rate sensitivity usually makes them the more attractive diversifier. This time, being in quality (Treasuries) was a good idea — Treasuries outperformed both investment-grade and high yield-corporates as well as mortgage-backed securities. But being in long maturity Treasuries was not the top idea due to only an incremental rate move at the long end of the yield curve. Better to be in intermediate Treasuries. Also note that long bonds, short maturity Treasuries, and gold could have all added a little ballast to a portfolio as well. But broad commodities (which is 30% energy) lagged.



From a portfolio perspective, the takeaways are that diversification is important, but it’s not enough to rely on a single source of diversification in a portfolio all the time. It’s important to understand what environment you’re in, and if the environment is uncertain, as we think the current one is, having exposure to different kinds of diversifiers can be beneficial.

Pay Attention to Sentiment
If you follow this space, you know that Ryan Detrick, Carson’s Chief Market Strategist, has been providing an on-going commentary on market sentiment throughout the downturn. As Ryan’s colleague for a little under a decade, I’ve learned that whatever else I’m thinking or feeling, I need to check it against the data that Ryan provides. Here’s some of the real-time analysis from Ryan’s blogs along with a few charts.

April 8: “The VIX soared to above 60 yesterday morning, hitting levels that historically have marked major bottoms for stocks. We’ll keep this simple, but when the VIX hits 50 for the first time in a month it has probably been preceded by poor performance driven by panic, likely suggesting better times are coming. In fact, the S&P 500 has gained more than 20% on average a year later after the VIX spikes above 50.”



April 16: “Stocks were flirting with a bear market until President Trump put a pause on all reciprocal tariffs (excluding China) for 90 days on Wednesday, April 9. The S&P 500 responded by gaining 9.5% in one day, the third best single day since World War II. Like a beach ball under the water, once it gets some momentum, it can really start moving. In fact, we found 23 other times (since 1950) the S&P 500 gained more than 5% in one day and the future returns were quite impressive longer term, with stocks up a year later more than 91% of the time and up nearly 27% on average.”





April 16: “It wasn’t just that last Wednesday saw huge gains. Nearly all the volume on the NYSE was for stocks moving higher as well (something we call a buying thrust). In fact, advancing volume was 98.6% of the total volume, the most in history (using reliable data back to 1980). We found six other times that had extreme levels and the S&P 500 was higher 3-, 6-, and 12-months later every single time. Check out some of those dates. August 1982 and March 2009 really stand out as some historic buying opportunities. This could be another clue that the sellers scared by currently known risks have exhausted themselves and higher prices over the intermediate term could be possible.”



April 22: “The recently released Bank of America Global Fund Manager Survey showed a record number of participants who intend to cut US exposure, as shown in the chart below. The survey also showed the largest two-month jump in cash since April 2020 and the 4th highest recession expectations ever. Given this survey looks at managers who manage actual portfolios, this is a very solid potential contrarian indicator.”



All I can say is Ryan, my friend, I hope I haven’t marked the turning point in sentiment by highlighting your calls. And for our readers, Ryan, Carson VP Global Macro Strategist Sonu Varghese, and the rest of the Carson team will continue to share our thoughts and analysis throughout the year. We won’t always be right, we won’t always be wrong, but you’ll always know what we’re thinking and why and it will be based on facts, not feelings.

Historically, Losers on the Way Down Are Often Winners on the Way Up
This is more a short-term observation. It took a long time for tech to come back from the tech bubble bursting and for financials to come back from the Great Financial Crisis. But during the immediate rebound from a selloff, the losers in the selloff can often be the winners in the rebound. Below are charts ranking 32 major indexes during the sell-off and the rebound as of Monday. It includes broad stock indexes as well as stock size, sector, style, and region; a few bond indexes; and a couple of commodity indexes.

It’s easy to see that many of the losers in the sell-off have flipped to winners in the rebound. In fact, the bottom five in the downturn are all in the top six for the reversal. Part of that is just “beta,” the inherent sensitivity of some of these indexes to market ups and downs, but that’s not the whole story.



Keep in mind that larger decliners need to make up extra ground on the way up. Something that is down 10% only needs to climb 11% to get back to flat. But down 20% has to go up 25% and down 50% has to go up 100%. As a result, as seen below, the net winners among equities have more in common with the first chart above than with the second, although we’re not all the way back yet.



For me, one of the grand takeaways from all of this is just reinforcement of the basic lesson that investing takes patience. Being “risk tolerant” doesn’t mean that you’re not going to feel bad when markets are down. It means that you know downturns are going to occur, you know you’re going to feel bad, and you are prepared to ride out the emotions. That may be the most important lesson for being an effective long-term investor. I can almost promise you (but you know with compliance reading this I can’t make a full promise) that when we have the next major decline, whether tomorrow, in a month, year, or longer, it’s going to feel like the downturn is different from every other and that the normal rules don’t apply. It always does — that’s just the way volatility works. But as Ryan likes to say, volatility is the toll we pay to invest.