Catch Bull At Four

“I seize him with a terrific struggle
His great will and power are inexhaustible.
He charges to the high plateau far above the cloud-mists,
Or in an impenetrable ravine he stands.”
Catching the Bull, Ten Bulls, Kuoan Shiyuan, c. 12th century

Investors have been in search of a new bull market with stocks careening to the downside for more than two months.  The footprints of the new bull market were discovered more than a week ago when stocks showed no inclination to retest April 7 lows even with the executive branch threatening the independence of the U.S. Federal Reserve.  The new bull was perceived in the days that followed as the S&P 500 broke decisively above its short-term 20-day moving average for the first time since its mid-February highs.  And as we enter the new trading week, investors are well served to catch the bull as it charges to its next high plateau potentially beyond new all-time highs.

“Oh, I’m on my way, I know I am
Somewhere not so far from here”
Sitting, Catch Bull At Four, Cat Stevens, 1972  

While many investors are still psychologically reeling from the tumultuous -21% peak-to-trough decline in the S&P 500 over a six week period from February 19 to April 7, the U.S. stock market has been surging inexhaustibly back to the upside.  Over the past two weeks alone, the benchmark S&P 500 has posted its best daily winning streak in more than two decades at nine days in a row.  In the process, the index now stands +18% above its April 7 lows and has effectively recouped all of its losses since so called Liberation Day on April 2 when the tariffs were first announced.  While the magnitude of this bounce is impressive, the nature of how this rebound has unfolded has been all the more remarkable.

Consider the above chart of the S&P 500.  Not only did the S&P 500 make quick work of what had previously been stiff resistance in its short-term 20-day moving average (dotted green line in the chart above), but it proceeded to advance assertively over the next five trading days through the middle of last week toward its medium-term 50-day moving average resistance (blue line in chart above).  Normally, it would have been reasonable to expect that U.S. stocks would take a breather and consolidate around the 5585 level on the S&P 500, as stocks had already traveled such a far journey so quickly to the upside already.  But on Thursday and Friday of last week, stocks blasted definitively higher through this key resistance level with little hesitation.  With the RSI back in bullish territory at 59 and rising and short-term momentum surging to the upside, the outlook for further gains in U.S. stocks at least in the short-term is decidedly positive.

So what’s up next for U.S. stocks heading into the new trading week?  The next and arguably last major resistance battle line for taming and riding the S&P 500 bull higher is its incrementally sliding long-term 200-day moving average (red line in the chart above) currently at 5746, roughly +60 points above where the S&P 500 closed on Friday.  Although futures are lower heading into the overnight into Monday morning trading, U.S. stocks appear on a collision course with this key resistance level in the week ahead.  And if stocks transcend above 5750 between now and the end of next week, the technical path is largely clear for a return to previous all-time highs in mid-February and potentially beyond.

“You’re gonna wind up where you started from”
Sitting, Catch Bull At Four, Cat Stevens, 1972 

Fortunately for U.S. stocks, the fundamental justification for a further upside move in stocks in the coming weeks continues to strengthen.

Consider the chart above showing the 2024 historical and 2025 forecasted per share corporate earnings growth on the S&P 500 Index.  We are now more than half, just over 55% to be exact, through the 2025 Q1 earnings season, and the results have been highly encouraging so far.  Have earnings growth projections coming into the quarter (dark red bars in the chart above) come down a bit through the first half of earnings season?  Sure, but it would have been extraordinary if companies hadn’t revised their outlooks lower at least somewhat given the supposedly cataclysmic uncertainty associated with the tariff rollout just over a month ago.  And the fact that corporate earnings growth is still holding in the +13% to +16% range for the rest of 2025 is decidedly encouraging (remember, we had less than 10% earnings growth throughout 2024 as shown by the blue bars in the chart above, and the U.S. stock market was up over +20% last year), as it implies that even after all of the tariff hubbub that underlying economic fundamental conditions remain strong.

What about inflation?  The financial news headlines, after all, continue to alert us on a real time basis that the associated price increases from all around the world are soon coming to our our shores at a popular retailer near you.  These price hikes may indeed come to pass, but even if they do, will they be sustained price increases?  The market itself clearly does not think so.  For unlike 2021 and 2022 when the 5-year breakeven inflation rate was picking up steam for well over a year, this same reading that estimates the projected average inflation rate for the next five years continues to languish at a very disinflationary 2.3%, down more than 30 bps from where we were before the tariffs were announced.

This largely unspoken in the financial media lately strong growth with low inflation backdrop is not only encouraging for investors hoping for a further asset price rebound, but it also provides the U.S. Federal Reserve with the flexibility to lower interest rates if they deem necessary in the months ahead.  And although the U.S. President and the Federal Reserve Chair have been locking horns lately over the future direction of interest rates, the reality remains that the Fed’s gonna Fed at the end of the day.  More simply, if the Fed perceives that the economy may be facing potential weakness in the months ahead at a time when inflationary pressures are subdued, they will act to lower interest rates if deemed necessary.  And according to the CME FedWatch tool that measures the probabilities of future Fed monetary policy actions based on 30-day Fed Fund futures prices, the market is predicting at least one quarter point rate cut by mid summer and as many as three interest rate cuts by the end of 2025.  And even if these rate cuts never come to pass, a U.S. stock market that even thinks it might just maybe get some interest rate cuts is one that can rally strongly simply on the anticipation.

Enlightenment: Putting these and many other indicators together (further narrowing high yield spreads, U.S. Treasury yields holding steadily in range, Bitcoin prices back on the rise) signal a strong fundamental foundation for a U.S. stock market whose path of least resistance, ceteris paribus, remains not only to the upside but returning to new all-time highs in the months ahead.

But what about the tariffs?  Indeed, this was big market moving deal in early April, but a 90-day pause was announced, which means the current administration gave themselves a lot of room to make this story gradually fade away.  Will some trade deals be announced between now and early July when the 90-day window technically closes?  Undoubtedly, but they will be signs that the trade imbroglio is increasingly coming to an orderly and perhaps relatively quiet resolution.  Perhaps more significantly, what people are talking about is likely to change two or three times over by the time we reach early July.  After all, the current occupant of the White House can change the narrative fairly decisively in 90 hours, so a 90-day pause will seem like an eternity from a relevant news flow perspective.

Bottom line: The outlook for risk assets remains increasingly favorable as we move into the first full trading week of May.  Risks remain to be certain, but the risk-reward balance remains tilted to the upside at least at the present time.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice.  All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.  Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #734974