Two months after the market's climactic low, in a moment commonly called "peak uncertainty," there remains plenty for investors to fret over. But the behavior and messaging of the market itself are not among them. The S & P 500 is up 24% from its intraday low of April 7, one of the strongest and fastest rebounds from a severe correction on record. In the process, the market reasserted its longer-term uptrend, the mega-cap favorites are back in gear, credit conditions are steady, non-U.S. equities are leading the way higher, industrial stocks are making new highs, Treasury yields remain within established ranges and the economy is acting roughly as it did pre-Liberation Day. It has all made for an exceptional resurgence from a steep borderline bear market, with the present path running ahead both of the average and medium snapbacks from severe corrections, as shown graphically here by Strategas Research. Deutsche Bank equity strategy team extols the unusual speed and ferocity of Wall Street's comeback from a sudden volatility storm: "In effect, this has proven to be the shortest selloff on a vol shock on record. Around prior episodes, as the shock got absorbed or receded slowly, equities typically took around 2 months to bottom and then another 4 to 5 months to recoup the selloff, or a total of 6 to 7 months for a roundtrip. This time round, with the original tariff shock itself diminishing very rapidly, equities have roundtripped in under 2 months and are already 4% higher. Usually at this stage of past vol shocks, the S & P 500 was still down almost -10%." The fact that the anticipatory market shock was triggered by a tariff-policy proposal that was both vastly more severe that the wisdom of crowds had predicted, and that was almost instantly walked back, helps account for the extreme torque of the recovery. The notion that "markets hate uncertainty" is both an overworked cliché and an unhelpful one. Uncertainty about the future is the permanent state of existence, and the markets surely are not always in hate mode. What markets react poorly to are sudden surges in perceived uncertainty, and acute suspense around hard-to-handicap policy decisions. The ultimate outcome of the tariff structure, the nature of any impending trade deals and the economy's interaction with these factors in the form of front-loaded demand or paused investments are all still uncertain. But investors are making an educated collective guess that the policy result will be manageable. A rational bet, perhaps, but one that at some point will be tested. RBC Capital U.S. equity strategist Lori Calvasina says her models indicate that "current pricing in the S & P 500 already reflects the step-up improvement in macro fundamentals that occurred two weeks ago when the US-China trade war experienced a significant de-escalation." This suggests some potential downside if trade-talk snags or re-escalation should hit. Though assuming cooling trade tensions is plausible enough given that the White House's apparent eagerness to convey progress (requesting a call between President Trump and China's Xi, then announcing the call), resembles strategic retreat. A couple of key reasons Wall Street has been able to recapture most of the lost market value and a good portion of its confidence: the economy has largely held in OK and the negativity expressed by the intense early-April selloff lowered the bar for what qualified as decent news. And so it was that last week's gallop by the S & P 500 back to the 6000 threshold felt like a victory, perhaps even an unearned one, even though the index first reached that level some seven months ago, and since then big companies have posted two quarters of impressive profit growth. If you give someone a good enough scare, just learning that it was only a scare will make them feel better than they did before the fright struck. Within 3% from high How far can such endorphin-releasing relief carry the tape? The S & P 500 is now within 3% of its former record high, close enough that the move is highly unlikely to be a fluky head fake, suggesting it will attempt to revisit the peak before too long – say within weeks. Professionals who monitor the flow of funds and the mechanical triggers that cause various fund strategies to buy or sell continue to insist that many hedge fund cohorts "need" to chase the market higher for a bit, assuming volatility continues to bleed lower. Goldman Sachs says global macro hedge funds have voraciously added market exposure, but only to bring their risk positioning to neutral. Renaissance Macro points to the S & P 500 making a new 65-day high last week, a quantitative siren call for trend-following black-box funds to get more involved. That said, the large-cap benchmarks are looking moderately overbought technically — not a bearish condition necessarily, but one that can lead to chop and churn, fatigue and shakeouts over the next little while. (I've noted in the past that market reactions to a monthly jobs report – such as Friday's nice little rally on a mixed but better-than-feared payroll gain – sometimes serve as the culmination of a market move rather than the start of one.) But one can pretty easily project that a quick return to the old highs would leave the tape even more stretched just as seasonal factors grow a bit less friendly and deadlines approach both for the tariff "pause" and the Congressional budget bill. Valuation by then would have re-expanded to, say, 22-times 12-month forward earnings for the S & P 500. While nasty valuation compression tends not to happen when earnings are growing and the Federal Reserve is not tightening, it would pinch the risk-reward calculus while making the market less tolerant of adverse headlines. As we all wait to see whether the market has enough in the tank to keep climbing what remains of the wall of worry, it's worth paying attention to the various rotations and pockets of enthusiasm taking hold. Race to the next hot thing The small-cap Russell 2000 is perking up and just broke above a six-month downtrend last week. This says more about investors' risk-seeking behavior and search for parts of the market that haven't moved much yet, than it does about any hoped-for economic acceleration. It's a vast and in many ways troubled index yet several of its top holdings are momentum story stocks such as Hims & Hers and Rocket Lab . Last week the IPO of stablecoin issuer Circle sent the speculative juices flowing. A clutch of early investors were happy to sell some of their stake at Circle at the issue price of $31 a share, before a panting public gunned the stock to $107 over two days. Circle now has a market cap exceeding State Street , a somewhat analogous asset intermediary for plain old financial products, which nonetheless has some $46 trillion under custody. This shows that old, loose, bull-market instinct to race toward the next hot thing. The party keeps moving to new locations, each promising a fabulous future if the longshot bets hit, from quantum computing to electric helicopters to drones to uranium processors. And then there's CoreWeave , the AI infrastructure play adjacent to Nvidia , whose moonshot path since coming public two months ago looks an awful lot like SuperMicro's discovery as an AI proxy in late 2023. This isn't about tut-tutting investor aggression or claiming that the market more broadly looks dangerously reckless. Bull markets require a certain measure of "Hey, you never know" thinking in order to keep rolling beyond a certain point. And there's history of the market going from existential panic to exhilarating audacity in a blink, such as when the 1998 near-bear market on hedge-fund blowups reversed to give way to the gluttonous risk binge of 1999. The latter phase was possibly a once-in-a-lifetime manic melt-up, but things can rhyme without precisely repeating. For now, the most intense fun is happening around the edges of a market that is, for now, working off the relief of the last scare and not yet forced to contemplate the next one.
