By Eric Parnell, CFA on May 13, 2025May 13, 2025 “I’m singing this note ’cause it fits in well with the chords I’m playing I can’t pretend there’s any meaning hidden in the things I’m saying But I’m in tune Right in tune” – Getting In Tune, The Who, 1971 It is the unexpected beauty of the Liberation Day tariff announcements from just over a month ago. When you initially announce tariffs against trading partners all around the world that are so wildly beyond anyone’s expectations, pretty much anything that you say that follows about actually striking a deal with a trade partner provides capital markets with a jolt of euphoria. This includes terms that are something less than impossibly extreme, and this assumes that the market even knows what the terms are at all. Strike a deal with one of our best trading partners in the United Kingdom where we actually have a trade surplus. Cue the rally! Hint at a trade deal with China without providing any of the details. Buy, buy, buy! After a tumultuous early April where the word “tariffs” had markets plunging to the downside, markets are now right in tune with the mere rumor of any trade deal poised to send stocks surging to the upside. We’ve already come a long way from its post Liberation Day lows on the S&P 500. And the good news for investors is that what was once a massive trade headwind for stocks has suddenly become a gusting trade tailwind. Consider the S&P 500, which has already rallied by more than +18% since its April 7 intraday bottom and is already trading at pre-Liberation Day levels. When the trade deal with the UK was announced on Thursday, U.S. stocks surged by more than +1% to new post Liberation Day highs before settling back. And with rumors of a U.S.-China trade deal brewing coming out of the weekend, stock futures are once again up over +1% heading into the overnight. What does this mean for the U.S. stock market going forward? The S&P 500 had already reclaimed its medium-term 50-day moving average support, which is was a significant development. The next major obstacle to the upside for the S&P 500 resides roughly 90 points higher from its 5659 Friday close at its 200-day moving average currently at 5748. If U.S. stocks reclaim this key technical level, and there are good signs that suggest this may ultimately come to pass over the coming trading weeks, then the technical path is clear for U.S. stocks to continue advancing toward and potentially beyond February all-time highs by early to mid-June. This would be a welcome development heading into the summer months after a market that was careening to the downside just a month ago. Of course, stocks are well served to have a justified fundamental reason for making such an advance to new all-time highs. And the good news is that U.S. stocks are at no shortage of having a variety of fundamental signals working in their favor in the coming months. Consider the latest on corporate earnings, which arguably more than anything else is the primary driver of stock returns over time. Concerns heading into the quarter were that the barrage of tariff announcements and their associated uncertainty would cause many companies to downwardly revise their forward looking guidance through the remainder of the year. This had the potential to meaningfully weigh on stock prices as we headed toward the summer. But what has unfolded instead with roughly 86% of 2025 Q1 earnings season now completed has been remarkable. Not only is corporate earnings growth for 2025 Q1 on the S&P 500 set to come in higher than expectations coming into the quarter (this is unusual, for despite all of the “beat expectations” nonsense that we hear on a daily basis throughout earnings season (I’m a normal distribution guy, so how the hell can 75-80% of companies continuously beat consensus analysts’ earnings expectations each quarter on average? Either these analysts’ really chronically suck at their jobs (in a normal world, at what point do analysts finally adjust their model estimates higher recognizing that they are repeatedly underestimating how well companies are doing each quarter?) or there’s something going on here, just sayin’), this number usually gets steadily revised lower as earnings season progresses), but corporate earnings growth forecasts remain robust in the 14% to 18% range through the remainder of 2025. Sure, not as strong as the estimates coming into the quarter, but still impressively strong. Perhaps just as importantly if not more so, inflation expectations continue to remain fully in check despite all of the financial news headlines and the underlying economy that remains stronger than what most analysts are giving it credit for at this point. On the inflation expectations front, the 5-year breakeven inflation rate continues to hover below 2.4%. Such a reading supports attractive and predictable real profit growth for corporations all day long. Speculation also remains abundant across capital markets. Consider CCC-rated or lower spreads relative to U.S. Treasuries, which is a fancy way of looking at how much additional yield investors are requiring to own the worst of the worst quality credits in the U.S. corporate bond market today. This reading has already dropped by more than two percentage points since the peaks roughly a month ago (this is good from a speculative standpoint, as it implies that investors are requiring to be paid increasingly less for lending money to the lowest credit worthy borrowers in the marketplace today) and appear poised to continue tightening further in the days and weeks ahead. The CBOE Volatility Index, or the VIX, which is a measure of investor “fear” in the marketplace at any given point in time, continues to descend. After peaking in early April at over 60, the VIX continues to break lower reaching below 22 in recent days and trending lower. Lastly for now, the Bitcoin implied price of the tech heavy NASDAQ 100 suggests it could be trading about +10% higher from current levels assuming this historical relationship continues to hold. Bottom line: Overall, a variety of factors continue to align to support further advances in stock prices in the coming weeks and months. This includes an increasingly favorable technical view coupled with still strong underlying fundamentals that together suggest that U.S. stocks may be poised to continue on the straight and narrow to the upside in the coming months. And what was once a liability in the tariff related news has since become a tailwind in supporting bursts of higher stock prices. 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 #738718.