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(Bloomberg) — A knee-jerk reaction to President Donald Trump’s 90-day pause on broad tariffs propelled US stocks to one of their best days on record last week. Ironically, that could be a harbinger of tough times for equity investors.
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The S&P 500 Index’s best days in history have usually preceded weaker-than-average returns in the near term. Following its 15 largest daily gains, the US stock benchmark was higher six months later just 43% of the time, Bloomberg Intelligence data going back to 1928 show. That’s lower than the 67% probability on any given day that the S&P 500 (^GSPC) will advance over the subsequent half year.
These “head fakes” happen frequently in market downturns, said Dave Mazza, chief executive officer at Roundhill Investments.
Indeed, such moves were only seen during past economic crises. Of the S&P’s best 15 days, two occurred during the pandemic in 2020, two in the 2008 global financial crisis, one amid the Black Monday rout of 1987 and nine across the Great Depression between 1929 and 1933.
The 9.5% advance in stocks on April 9 tied for the eighth-best day ever for the S&P 500, according to an analysis led by BI strategists Gina Martin Adams and Michael Casper. It came after Trump said he would hold off on some of the harshest reciprocal tariffs, hurling shares toward their largest upswing in 17 years. That jump helped US equities notch their best week since late 2023.
The biggest Wall Street firms have highlighted how difficult it has been to predict the trajectory for equities. Barclay’s Plc’s Venu Krishna said the dramatic volatility leaves little confidence in any pricing now, while JPMorgan Chase & Co.s (JPM) Dubravko Lakos-Bujas indicated that forecasting in the current environment is a challenge and leaves a wide range of outcomes, all contingent on trade policy.
The next big hurdle for investors is first-quarter earnings, which kicked off Friday with big banks including JPMorgan Chase and Morgan Stanley (MS). Analysts are warning that companies are flying blind through the trade war turbulence, forcing them to withdraw their outlooks and causing further market swings.
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Tariff Risks
Wall Street has been quick to dismiss last week’s record-breaking session, noting that the jump was the result of hedge funds forced to rapidly close out bearish positions, and algorithmic trading strategies picking up on tariff headlines.