Michael M. Santiago / Getty Images
-
A stock market rally stalled on Tuesday as investor optimism waned a day before the sweeping tariffs that tanked stocks last week are scheduled to go into effect.
-
Tuesday’s short-lived rally followed a turbulent session yesterday when stocks whipsawed on rumors about a 90-day tariff pause.
-
Some analysts saw signs of capitulation—usually a sign of peak pessimism that presages a rebound—in last week’s sell-off.
A broad stock market rally stalled today as investors lost hope for a quick reprieve from the pullback that followed sweeping tariffs announced last week.
The S&P 500 slumped 1.6% on Tuesday after soaring 4% early in the session, while the Nasdaq Composite, up nearly 4.5% in the session’s first hour, fell 2.2%. The Dow slid 0.8%.
The S&P 500 shed more than 10% in the final stretch of last week after President Donald Trump announced country-level tariffs that economists warn are likely to raise consumer prices, weigh on profit margins, and slow economic growth. The sell-off was the swiftest in more than 5 years.
Uncertainty remained elevated Tuesday morning, with White House officials saying they’re currently negotiating with more than 50 countries that are slated to be hit with steep tariffs starting Wednesday. Still, stocks rallied in a possible sign that dip buyers were eager to snap up stocks at attractive prices. The S&P 500’s price-to-earnings ratio, which stood at nearly 28x earlier this year, had plummeted to nearly 21x by Monday’s close, according to analysis by Bespoke Investment Group.
Wall Street’s eagerness to buy the dip was evident on Monday when stocks briefly soared as rumors circulated that Trump was considering a 90-day pause. The S&P 500 rose from an intraday low of 4,835 to a high of 5,246, an 8.5% jump that stands as the index’s biggest intraday swing since March 2020. The White House later denied the 90-day pause rumor and the rally sputtered.
“I think the potential severity of the negative outcomes is not fully priced into the market, so it makes sense to stay cautious and wait for more information,” wrote Chris Buchbinder, principal investment officer of the Capital Group Dividend Value ETF, in a note on Monday afternoon.
Buchbinder recommends investors evaluate their asset allocations and, “given more than a decade of outsized gains in the U.S.,” diversify their portfolios.
Others saw promising signals in the chaos of last week’s rout. “Equities were being sold indiscriminately. Credit spreads widened. Investors were divesting of risk-based assets across the board,” all possible signs of capitulation, wrote Marc Zabicki, Chief Investment Officer at LPL Financial, in a note on Tuesday. (That, the thinking goes, means stocks might not fall much further since most sellers have been shaken out.)
