By Eric Parnell, CFA on May 20, 2025May 20, 2025 “Hark, now hear the sailors cry Smell the sea and feel the sky Let your soul and spirit fly Into the mystic” Into The Mystic, Van Morrison, 1970 Stocks are sailing. It’s extraordinary to consider that in just six astral weeks, the U.S. stock market has transformed from cascading endlessly to the downside to magnificently floating to the upside. The headline benchmark S&P 500 Index has now traded higher in a remarkable sixteen out of the last nineteen trading days. And the last major obstacle in bringing to an end the ursa minor that stoned the markets from mid-February to early April heading into last week was 200-day moving average resistance (the red line in the chart below). But no sooner did the trading week get underway and stocks rocked right past it. What lies ahead for this suddenly mystical market? Symmetry. It is an interesting exercise when reflecting back through market history from a technical analysis standpoint, as major stock averages such as the S&P 500 show a remarkable symmetry in their movements through corrections over time. What does this mean? More often than not, we see a comparable amount of time traveled from a market peak-to-trough and the subsequent trough-back-to-peak. Let’s consider the current example shown in the chart above. It took the S&P 500 roughly seven weeks from February 19 to April 7 to endure a -21.3% decline, which some consider to technically be a bear market as measured by a -20% decline or more from a previous peak (hence the “little bear” reference above). Thus, we should reasonably expect, particularly given the underlying economic and corporate earnings fundamentals support, that it will take roughly seven weeks from the April 7 lows for the S&P 500 to reclaim its previous all-time highs. So where does that land us in terms of timing today? This implies that the S&P 500 could be pressing new all-time highs as soon as around Memorial Day. Now this timing may be a touch ambitious in the current market, as the S&P 500 is now arriving at overbought levels with a Relative Strength Index (RSI) now effectively at 70. This implies that we are now overdue for at least a short spell of consolidation before making the final roughly two hundred S&P 500 point push back to new all-time highs. Nonetheless, the current stock market remains solidly on this encouraging upward trajectory. Caravan. It is important to note that the U.S. stock market is not alone in its advance to the upside, as many of its friends across capital markets have already been turning it up. Leading among the group is developed international stocks as measured by the MSCI EAFE Index, which had been trading at all-time highs as recently as the middle of March before its own correction but has already delivered on the symmetry discussed above – the peak-to-trough correction took roughly three weeks through early April and the subsequently trough-back-to-peak rebound to new all-time highs played out over the three weeks after. Let’s run with this one a little bit more. While the S&P 500 has clawed its way back to flat for 2025 on a price basis, developed international stocks have been on a relative moondance virtually all year and are now trading higher by more than +12% on price alone (see below). Could this non-U.S. outperformance continue for the foreseeable future? Absolutely, as developed international stocks continue to collectively trade at a 40% discount to their U.S. counterparts at a time when the geopolitical growth and global trade landscape may be in the early stages of shifting at least marginally in favor of the world relative to the U.S. going forward (don’t worry, we’ll likely be exploring this topic A LOT in the coming months). This isn’t necessary a knock on the U.S., but more a recognition that non-U.S. stocks may finally be getting back in the game after years of languishing. Come running. Of course, it’s always important to remember that nothing is permanent when it comes to capital markets. Just when it seems like the upside dream will never end, the wind and rain catch the market again. What are the primary downside risks facing the markets going forward as we emerge from the tariff spring? Inflation. The biggest risk today is the same one born long before the tariff winds, which is the ongoing threat of a renewed rise in inflation. Yes, the 5-Year Breakeven Inflation Rate that measures the average expected inflation over the next five years as priced by the markets remains subdued as shown in the chart below (it has bumped higher by 17 bps from a recent low of 2.25% to today at 2.42%, but this is still low). And yes, the Fed Fund futures according to the CME FedWatch are pricing in the base case probability for two quarter point rate cuts by the end of the year (if the markets thought inflation was going to be a problem, they wouldn’t price in rate cuts but instead rate hikes). Nonetheless, the inflation tables can turn quickly, particularly in an environment where the talk of 10-15% tariff trade deals with global trading partners is the buzz du jour for financial markets. As a result, these readings are arguably as important as ever to monitor as we drift through the summer and toward the fall. This includes monitoring U.S. Treasury yields including the benchmark 10-year. If this starts pushing toward 5% driven in part by the threat of higher inflation, watch out. Geopolitics. The world is about as complicated as it has been in a long time. Global harmony continues to give way to spheres of influence, and signs of passive aggression are continuing to mount in many regions on both a micro and macro level. At least during the Cold War nearly all eyes were on the Soviet Union. Today, it’s a multi-player game, and the risk of assertive conflict is rising. While markets have always performed well in the medium-term to long-term in the wake of any geopolitical outbreak – the greatest historical example arguably remains the slow but sustained U.S. stock market rally from its bottom in April 1942 (outcome to WWII completely unknown at this point) all the way through to the end of World War II and beyond. With that said, this remains a critical short-term market shock risk that also warrants ongoing attention. Unknowns. While history is a highly instructive guide in working to understand the direction of capital markets going forward, it is important to also recognize that we live in an increasingly complex and rapidly moving environment that is riddled with risks that we are aware of and don’t understand the potential economic or market impact (attack on the U.S. energy grid, cyberattack on the U.S. financial system, etc.) as well as the risks we are not even conceptualizing nor understand the associated impact (???). Not tariffs. While the financial media is likely to continue wringing their hands about tariffs and their associated market impact in the months ahead, it is very likely that this downside risk game is over. In fact, international trade has the much greater potential to drive upside surprise going forward. Why? The tariffs announced against global trading partners on April 2 – so called Liberation Day – were so far above and beyond anyone’s expectations that the eventual trade deals that get announced with tariffs in the 10-15% range will provide a steady sigh of relief each time that have the potential to further nudge stocks higher. Bottom line. It feels like a brand new day for capital markets including U.S. stocks. And the reasons for ongoing optimism remain plentiful as we move toward the summer months. The latest episode reinforces once again the importance of remaining dedicated to your long-term investment plan. With that said, monitoring the markets and the potential downside risks remains as important as ever. 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. 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