S&P 500 rockets 20% in six weeks—Wall Street’s animal spirits are back (and so are the margin loans)
Bulls trammel bears as the benchmark index posts its fastest rally since 2020. Traders pile into risk assets like it’s 2021 all over again—just don’t ask about valuations.
Tech leads charge: Mega-caps and AI darlings fuel the surge while Main Street shrugs at ’transitory’ inflation. The Fed? Suddenly dovish after three rate cuts.
Greed index flashing red: Short sellers capitulate as volatility collapses. ’This time is different’ narratives proliferate despite 85% of gains coming from multiple expansion, not earnings.
Bonus cynicism: Nothing cures a bear market quite like the collective amnesia of a new generation of traders who’ve never seen a proper drawdown.
Traders rotate fast as volatility crashes and momentum builds
The market’s comeback wasn’t quiet. It’s been a straight-line grind higher, the kind of boring rally that signals strength, not weakness. Last week alone, the S&P 500 added 5.3%. Technical indicators triggered momentum and breadth signals that usually only go off during a real escape from a market bottom.
The VIX, Wall Street’s fear gauge, plunged from 50 to under 20 faster than ever recorded. It ended the week at 17, a level that reflects calm instead of chaos.
Retail names like Robinhood, Palantir, and CoreWeave have soared 50% to 60% since April 7. Robinhood and Palantir moved almost in sync. CoreWeave, which only IPO’d last month, is up nearly 60%. Nvidia spiked 16%.
Meanwhile, social trading firm eToro, which went public last week after ditching its 2021 SPAC plans, jumped 20% right out of the gate. Stablecoin firm Circle, along with fintechs Klarna and Chime, have all filed to go public too. Brokerage and investment banking stocks as a group are back NEAR their highs, riding the wave of investor confidence.
Tariff retreat feeds bulls as AI and fiscal noise shape outlook
The real fuel for the rally came when President Donald Trump backed away from his sky-high China tariffs. Warren Pies, chief investment officer at 3Fourteen Research, said the rebound is tracking similar to policy-driven bottoms seen in 1998, 2011, and late 2018.
But this isn’t pure euphoria. Hedge funds and institutional investors are still underweight. Surveys of retail traders and financial advisors show sentiment barely above recent bearish lows. The energy from late 2024’s “animal spirits” is trying to restart, but hasn’t fully ignited yet.
Some of the volatility in April wasn’t about tariffs at all. The first dip came after momentum tech names reversed sharply when DeepSeek’s AI challenge threw off the usual order. But since then, most major platforms have doubled down on capex, and the AI story is back in business.
Big names are inching back to their highs. The Nasdaq Composite, since ChatGPT launched, has eerily followed the same pattern it took after Netscape’s debut in 1994. By 1997, it had tripled. No one’s betting on a repeat just yet, but the resemblance hasn’t gone unnoticed.
As for tariffs, their impact could still change the game. The US trade deficit with China is just 1% of GDP. China’s exports to the US make up 3% of its economy. But even small disruptions create confusion. If those tensions linger, they could drag on jobs and housing, which are already slowing. And now the “free pass” zone is over. The next wave of economic data will hit harder.
Valuation-wise, the S&P 500 is trading at 21.5 times forecast earnings over the next year. That’s high. It’s not crisis-high, but it’s uncomfortable. Back in February, it hit 22x—above that, and markets usually want more than just talk.
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