Anthony Saglimbene, Chief Market Strategist – Ameriprise Financial
5/19/2025
Since the April 8th lows, the S&P 500 Index has climbed roughly +19.5%, its strongest one-month-plus rally since April 2020 when the market rebounded from COVID-19 lows. That's after the Index had fallen by roughly 19% from its February high through April 8th. It's rare for the S&P 500 to rally so aggressively in such a short period of time. What's even less common is for the Index to do it so closely after losing 10% or more.
Outside of recessionary periods, stock returns after such outsized bouts of volatility tend to be positive over the next twelve months. In fact, in periods where the S&P 500 has gained and lost 10% or more in such close proximity, returns tend to match the average over the next six months and tend to be above average over the next year, according to Bespoke Investment Group.
With such dramatic swings in a short period of time, you may wonder whether markets are now poised for a more stable pattern. Here are six factors that may affect market performance in the next few months one way or the other.
1. Progress on trade deals before early July
With the 90-day reciprocal tariff reprieve scheduled to end in early July, the White House needs to keep putting trade wins on the scoreboard sooner rather than later. A framework trade deal with the UK and a substantial reduction in U.S./China tariffs are a good start, in our view.
Bottom line: Investors will want to see further trade deals or outlines of trade deals with our closest allies that help roll back or further delay the more aggressive tariff rates proposed by President Trump at the beginning of April.
2. A path forward with China
With a temporary reprieve in aggressive tariff rates between the U.S. and China currently in place, trade talks between both sides will need to continue to de-escalate tensions over the coming months and allow trade between both sides to continue without major disruptions.
Bottom line: The White House and China need to find a path forward that meets each country's objectives in a constructive and mutually beneficial way.
3. Continued strong earnings growth
The first quarter earnings season went much better than analysts expected. Profit growth was strong across Health Care, Communication Services, and Information Technology companies in Q1, with all three sectors expected to drive earnings growth in Q2.
Notably, while commentary and outlooks were mixed across S&P 500 companies, depending on tariff impacts and industry factors, overall demand conditions in the U.S. remain stable. S&P companies, in aggregate, are expected to post positive earnings growth in Q2 despite known macroeconomic headwinds.
Bottom line: Investors need to believe and see that earnings growth can remain positive this year. Under such conditions, we believe stocks can find more lasting support.
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4. How well the overall economy holds up
Stocks aren't cheap, and the recent rally has narrowed some of the more obvious investment opportunities presented in early April. With the S&P 500 currently trading at roughly 22x 2025 earnings expectations, further deterioration in economic activity is a threat to profit growth and a risk to stock prices.
Economic data over the coming weeks and months will likely reflect how tariffs are impacting consumers and businesses. So far, analysts have made only modest adjustments to Q2 and Q3 earnings expectations for this year, while maintaining a relatively healthy assessment of full-year profit growth. The bulls can find comfort knowing profit expectations for this year remain healthy, given the uncertain backdrop. Bears, on the other hand, may see downside risks in this assessment.
Bottom line: The truth may lie somewhere in the middle, which could produce periods of further volatility depending on how macro conditions evolve. Yet, if worst-case scenarios for growth and profits this year are avoided, the market may already be starting to price in a more stable environment ahead.
5. Increased clarity on fiscal and monetary policies
Importantly, if markets do again head south at some point, but avoid moving to or through the lows seen in April, we believe investors would become even more comfortable allocating new capital to the market over time. This could add further support to stabilizing stock averages.
Should economic activity weaken later this year, we would expect the White House to keep its most aggressive tariff proposals at bay. Notably, if labor conditions also weaken, we believe the Federal Reserve has ample room to lower its policy rate to help support employment. Thus, investors would likely begin to look ahead to better conditions, making it less likely that major averages would stay at depressed levels for very long should stocks see another bout of selling pressure.
Bottom line: Increased clarity on fiscal and monetary policies is an important factor that could lead to market stabilization over time.
6. Resiliency in the labor market and inflation data
Finally, a resilient labor market and inflation data over the coming months that does not lead to investors' and consumers' worst fears may go a long way in helping stabilize market conditions over time. We believe stock prices already reflect some level of slower economic activity this year. And as long as conditions around employment and inflation don't deteriorate unexpectedly, consumer and business spending is also unlikely to deteriorate quickly.
Bottom line: In this scenario, we believe markets would find balance over time and offer longer-term investors an opportunity to invest with increased confidence.
Learn more: 7 reasons to stay invested
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Bouts of market instability can leave you with questions. Reach out to an Ameriprise financial advisor to review how your personalized investment strategy is positioned to support your long-term goals.