The stock market has gone from deeply oversold to aggressively overbought in record time — and some on Wall Street are wondering if the reversal happened too fast.
Investors who boldly bought the dip in April were quickly rewarded. But did stocks rebound too far, too fast? Some strategists believe so.
Michael O’Rourke, Chief Market Strategist at Jones Trading, told MarketWatch: “What we’re seeing right now is emotion and fear of missing out driving this rally.”
Since the April 8 close — the recent bottom — the S&P 500 has surged more than 17% as of Tuesday’s close, a pace nearly unmatched in the past 75 years. Analysts at Birinyi Associates identified six similar historical episodes dating back to 1950, and in each case, 12-month returns were broadly positive.
The most dramatic example was the post-COVID rebound in 2020, when the S&P 500 jumped 47.5% in just 60 sessions following the crash, and then went on to gain another 30% over the next 12 months.
Still, plenty of investors expect volatility ahead. Even prominent figures like Paul Tudor Jones have warned the market may revisit its April lows later this year as the economic toll of tariffs becomes more visible.
“We’ve gone from oversold to overbought in record time”
Mark Hackett, Chief Market Strategist at Nationwide, warned that U.S. equities still look expensive relative to expected earnings over the next 12 months.
“The market has screamed from oversold to overbought in record time — the S&P 500 is now trading at 21 times forward earnings,” he said in an email note.
The S&P 500’s RSI — a popular momentum gauge — topped 70 on Wednesday, signaling an overbought market. Just a few weeks earlier on April 4, before Trump announced a 90-day tariff pause, the RSI was below 30.
Of course, bulls have arguments on their side. Trump has already rolled back many of the most economically damaging tariffs, and few expect him to reverse that decision — at least not those announced on April 2.
Meanwhile, hedge funds and institutions that sold or sat out the April selloff may now be under pressure to chase the rally, further fueling gains.
Trade agreements with the UK and China suggest the White House is serious about finding off-ramps. According to J.P. Morgan data, following a dramatic reduction in China tariffs this week, the U.S. effective tariff rate has dropped from nearly 24% to 14.4%. Still, even that is well above pre-2025 levels.
Most of the hard economic data released so far suggests that the spike in policy uncertainty has not yet significantly hurt the U.S. labor market or consumer spending.
However, much of April’s data hasn’t been published, and some believe the full impact of the tariffs could take longer to emerge.
Melissa Brown, Managing Director of Applied Research at SimCorp, said, “There’s likely been damage to smaller businesses in particular, and that may be harder to recover from in the short term.”
Tariff Agenda Still in Flux
Unanswered questions around the White House’s tariff agenda continue to pose risks for equities. Speculation has returned about whether the so-called “Trump put” is still in effect, after the administration appeared to respond to financial market stress with concessions on tariffs.
National security tariffs on semiconductors and pharmaceuticals remain an open issue. While the administration has stayed largely quiet about the plans, the Commerce Department was reportedly asked to begin an official review in early April, according to O’Rourke. If the White House pushes forward with heavy duties to promote domestic production of sensitive goods, that could hit markets again.
This policy confusion underscores a key risk for stocks: Trump could crash the market with a single post on Truth Social.
Still, O’Rourke suspects last month’s turmoil may have shaken the president’s resolve.
“He might’ve been so shocked by the market’s reaction to the China tariffs that he won’t push forward,” he said.
Then there’s the bond market. The 10-year Treasury yield quietly climbed back above 4.50% on Wednesday — levels not seen since the last bout of tariff turmoil. Bond prices move inversely to yields, meaning rising yields pressure both bonds and equities.
George Cipolloni, portfolio manager at Penn Mutual Asset Management, said, “Long-term yields are climbing, and that’s now shaping up to be our next big battle.”
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