The stock market has been rallying sharply higher since President Donald Trump reversed course on April 9, pausing most of the reciprocal tariffs that had tanked stocks when he'd announced them on April 2.
The S&P 500 and Nasdaq have gained double-digit percentages in hopes that cooler heads may prevail, allowing trade negotiations to reduce the impact of tariffs on consumers and businesses significantly.
However, debate over whether stocks can continue climbing has increased alongside stock prices, particularly in the past week. The S&P 500 has retraced its April 2 losses, and some sentiment measures suggest stocks may be overbought.
The potential for stocks to rollover has been highlighted by many, including legendary portfolio managers Bill Gross and Paul Tudor Jones. One person who doesn't seem nervous, however, is President Trump.
After the Federal Reserve decided to leave interest rates unchanged at its latest monetary policy meeting, Trump went to the airwaves to support markets, including on May 8, when he delivered his strongest message of stock market support.
The stock market has rebounded sharply since President Trump paused reciprocal tariffs on April 9.Michael M. Santiago/Getty Images
The stock market looks beyond tariff headwinds.
The market rally has been broad-based, crisscrossing sectors and industries. However, the most significant gains have come from technology stocks, which were hard hit ahead of Trump's early April tariff announcement.
Technology stocks were already weak leading up to April 2 because of mounting worry that AI spending growth has peaked. After OpenAI's ChatGPT became the fastest app to reach one million users following its launch in 2022, most companies significantly ramped up IT budgets to train their large language model AI chatbots and agentic AI programs.
Banks are using AI to hedge risks, manufacturers are using it to boost quality control and streamline inventory, retailers are exploring its use to improve supply chains and reduce theft, and healthcare companies are using AI to develop next-generation medicines. Even the military has gotten in on the action, exploring AI's use on the battlefield.
The tsunami of AI interest caused a massive acceleration in computing power demand, leading to the biggest network infrastructure upgrade cycle since the dawn of the Internet.
Major hyperscalers plowed big money into data centers, refreshing equipment with liquid-cooled servers powered by next-generation graphic processing units (GPUs), largely sold by Nvidia. In 2024, capital expenditures at Amazon, Google, and Microsoft alone totaled $191 billion, up 63% from 2023.
The surge in activity fueled investor optimism over the revenue and profit opportunities associated with launching AI solutions, sending high-tech stocks higher. Nvidia, for example, rallied 171%, and Palantir, a data solutions company with a growing suite of AI solutions, soared 340%.
The prospect that IT budget growth will slow following a potential overbuilding of capacity caused many tech stocks to stall in the first quarter. Those concerns were amplified when Trump announced his tariffs.
As a result, Palantir retreated 41%, Nvidia fell 33%, and the Technology Select Sector SPDR Fund (XLK) fell 26% from mid-February highs to early April lows.
Since then, however, most stocks have been up, up, and away. The S&P 500 and Nasdaq Composite are up 14% and 17%, respectively, and the XLK has gained over 21% since April 8. Nvidia and Palantir? They're up 24% and 61% since their early April lows.
President Trump sparks FOMO, sends shares higher
The President isn't shy about his opinions regarding the market or the economy. Since his tariff announcement, he has criticized Federal Reserve Chairman Jerome Powell for holding interest rates steady rather than cutting them to spur GDP growth.
Last month, he called Powell "Mr. Too Late," suggesting his hesitancy to cut rates may put him behind the curve. For example, in 2022, he delayed raising rates to combat inflation, believing inflation would be temporary.
Now, he's focusing his attention more directly on the stock market.
"You better go out and buy stocks now. Let me tell you," said Trump from the Oval Office. "This country will be like a rocket ship that goes straight up."
The positive comments followed news that the United Kingdom and the U.S. had agreed to a trade deal that reduced US auto tariffs from 27.5% to 10% for 100,000 British-made vehicles like Rolls-Royce and Jaguar and scrapped steel and aluminum tariffs, but left 10% universal tariffs in place.
The White House also suggested more deals would be announced soon, and Trump left the door open to reducing reciprocal tariffs on China from their current 145% level if discussions go well this weekend.
“I mean, we’re going to see,” said Trump. “Right now, you can’t get any higher. It’s at 145, so we know it’s coming down. I think we’re going to have a very good relationship.”
The S&P 500 and Nasdaq 100 rallied intraday by 1.6% and 1.9%, respectively, before closing up 0.60% and 1.03%, respectively, on May 8.
