This Rally Feels Early—Because It Is
A look at what the market is pricing in vs. what’s actually improved—and what that disconnect means for risk.
We began deliberatly re-entering the market last week as our short-term indicators improved, and we’re now positioned at approximately 60% equity exposure across all of our equity strategies.
Although the February–April drawdown appears to have run its course, I’m not ready to declare an "all clear." Fundamentally, while the macro backdrop has improved on the margin, the core drivers haven’t materially changed—and that matters.
I know this view runs counter to the growing optimism, but I continue to trust the RiskSIGNAL™. It suggests this rally may have a bit more room in the short term, but we're likely heading into a phase of consolidation or, at best, a choppy sideways grind.
On Sunday, we analyzed the positioning of systematic strategies—specifically Vol Control, CTAs, and Risk Parity—and noted they were likely to increase equity exposure. These strategies tend to respond reflexively to declining volatility by ramping up risk exposure, which can amplify market rallies as they mechanically buy into strength.
While I still believe that signal remains valid, I noticed a potential slowdown in that systematic bid today. It may simply be a healthy pause, not a reversal. That said, I continue to place more weight on the influence of systematic flows than on fundamentals in this environment, but I felt this was worth noting.
Price Action Technicals - S&P 500 Futures
On Sunday, I said bulls needed to punch through the top of the 5,590–5,832 range to break the chop — and they did, just as dealer gamma pushed into more positive territory.
But now momentum is stalling. The RSI is flattening, and 5,832 must hold as new support if bulls want to press higher.
Fail to hold it? We're back to chop and volatility.
Where is the Trump Put Now?
The S&P 500 has clawed back all of the post–“Liberation Day” sell-off. Most of that rebound is tied to one thing: the trade war doesn’t look nearly as bad as it did back in early April.
Monday’s larger-than-expected U.S./China tariff reduction helped, along with last week’s positive headlines—like a U.S./U.K. trade deal that investors hope signals broader tariff relief, plus Trump floating more potential agreements with South Korea, Japan, India, and others.
It’s good news—especially compared to the panic we saw a few weeks ago. But while I’ll take the rally, I’m skeptical it’s enough to carry the S&P meaningfully above 6,000.
The real takeaway here is that the Trump Put has moved higher.
Quick refresher: the “Trump Put” refers to Trump walking back tariffs or shifting his tone if markets fall too far, too fast. That’s precisely what we saw in April. At the time, markets feared the Put wouldn’t kick in until we dropped well into the 4,000s. But it triggered earlier—likely somewhere in the mid-to-low 5,000s.
That’s constructive in terms of limiting downside. But let’s not confuse “not as bad as feared” with “actually good.”
Global tariffs are still heading higher than they were in January—even if we land around 10%, that’s still a significant potential drag. And the volatility isn’t going anywhere. The tariff noise around movies and pharma shows that policy risk is still very much alive.
That’s the core issue. I’m not bearish. The economy can handle 10% global tariffs, and while 2025 earnings will likely get trimmed, it doesn’t have to be drastic.
But this bounce is hard to justify. The S&P is now trading above 21x forward earnings—that’s not a multiple you pay in a slowing-growth, high-uncertainty environment. There’s no cushion for bad news.
The market overreacted to the downside at 4,850, and it’s probably overreaching on the upside at 5,900. We’re somewhere in the middle.
I still think this is a range-bound market—just with a higher range now. Somewhere around 5,300–5,900 seems more realistic given the trade news.
If valuations reset or there’s actual fiscal support or more tariff relief, we can reassess.
But until then, I’m not chasing this market without evidence.
Let’s Take A Look At Fundamentals
The May update to the Market Expectations Table delivers a clear message: the macroeconomic backdrop has genuinely improved since early April. But when you strip away the headlines and look at the data, it's evident that the market has gotten ahead of itself. The rally has outpaced the actual progress, and the S&P 500 is now trading above what fundamentals would suggest is fair value.
Put simply, the market isn’t as bad as it looked a month ago—so the move from the high 4,000s to the low 5,000s makes sense. But this is not the bullish environment we had back in January. The current setup doesn’t justify the level of optimism baked into prices today.
At 5,800, the S&P 500 is trading at 21.9x estimated 2025 earnings—a premium valuation for a market still dealing with:
Historically high tariffs (even post-reduction)
Persistent policy uncertainty
Growing macroeconomic headwinds
A delayed Fed pivot (September is now the expected start)
Unresolved pressure on corporate earnings
While momentum may keep driving stocks higher in the near term, fundamentally this isn’t a strong enough environment to support where valuations sit today. The backdrop is better than it was in April—but far from the strength we saw in January. That makes it difficult to justify being flat or higher on the year without a meaningful shift in the data. In short, chasing stocks here looks premature.
Current Situation:
The recent reduction in tariffs has helped ease fears of a full-blown trade-war-induced stagflation scenario. Investors are increasingly viewing the situation as part of a broader negotiation process rather than a breakdown in global trade. Meanwhile, economic data has remained resilient, and inflation metrics have remained contained, undermining the more extreme stagflation concerns circulating just weeks ago.
That said, while the backdrop has improved significantly compared to a month ago, this is still an environment with notable headwinds for equities—especially relative to the more favorable conditions at the start of the year. The rally appears justified, but continued elevated volatility should be expected.
Conditions Improve If:
Further tariff reductions that anchor effective global duties closer to 10%
Progress on trade agreements that reduce uncertainty
Ongoing economic strength that counters recession fears
Tame inflation data that allows the Fed room to cut rates
If these developments unfold, we could see a sustainable rally toward—and potentially through—the 6,000 level on the S&P 500, as trade and stagflation risks fade.
President Trump signed an executive order on Monday aimed at slashing prescription drug and pharmaceutical costs by an estimated 30% to 80%—with changes expected to take effect almost immediately.
To put that in perspective: prescription drugs make up just 1.35% of the CPI basket. But an 80% price cut in that category could translate into a full 1% drop in CPI—a massive move for a single policy shift.
The U.S. currently pays 3 to 4 times more for drugs than other developed countries. This order ties U.S. drug pricing to the “most favored nation” rate—meaning we’ll pay no more than the lowest price paid globally. Trump also acknowledged that drug prices abroad will likely rise as pharmaceutical companies attempt to offset revenue losses. That’s not just plausible—it’s almost inevitable.
Conditions Get Worse If:
Tariff cuts prove short-lived, with limited follow-through on trade deals
A re-escalation in Chinese tariffs due to stalled negotiations
Economic data begins to weaken, confirming slowdown fears
Inflation reaccelerates as companies pass on tariff-related costs
This scenario would reverse much of the recent progress, reigniting concerns around trade-war-driven stagflation and likely triggering sharp declines across both equity and fixed income markets.
And remember - The one fact pertaining to all conditions is that they will change.
Feel free to use me as a sounding board.
Best regards,
-Kurt
Schedule a call with me by clicking HERE
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President
Email: kurt@ivoryhill.com | ivoryhill.com