A Bull Market Continues to Charge Forward, but When Will It Meet a Bear Market?

The stock market has been on a remarkable run lately. The S&P 500 Index recently posted a nine-day winning streak, rising 10% during that span. This marked the longest such streak in over two decades and brought the index back to levels seen before April 2, the day President Donald Trump launched his global trade war. Yet, the real question is: What’s behind this rally?

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Analysts suggest that much of the current momentum is being fueled by retail investors rather than institutional players, many of whom remain cautious and underexposed to U.S. equities. With large investment firms sitting on the sidelines, individual investors appear to be the driving force behind the market’s recent gains.

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And while that may sound risky, history shows that retail enthusiasm can be a powerful force. As a twist on the words of former Citigroup CEO Chuck Prince during the pre-2008 financial bubble, "the music is still playing, so investors are still dancing."

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David Wagner, portfolio manager at Aptus Capital Advisors, sees opportunity in this setup. “A lot of professionals overlook how markets perform over longer periods,” he said. “Right now, I may be siding with the retail crowd.”

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Despite the surge, the fundamentals remain murky. Economic indicators are sending mixed messages. Trump’s tariffs are only beginning to impact the economy. The U.S. Bureau of Economic Analysis reported a contraction in inflation-adjusted GDP for the first quarter—the first such decline since 2022. On the other hand, April’s employment data from the Bureau of Labor Statistics showed strong job growth, even as signs of labor market cooling begin to emerge. Consumer sentiment indicators—known as "soft data"—have also been discouraging.

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Corporate earnings have been decent, though not spectacular. Many companies remain reluctant to offer full-year forecasts due to global economic uncertainty. Tech giants Microsoft and Meta posted strong quarterly results, but Amazon and Apple hinted that trade tensions are starting to take a toll. While the Trump administration has floated the idea of upcoming deals with some trade partners, nothing firm has materialized.

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Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, believes markets will remain volatile until there’s a clear connection between weak consumer sentiment and actual economic slowdowns. “Until we see soft data turning into hard data, every day will feel uncertain,” he noted. He expects the market to continue reacting to shifting news around trade negotiations.

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Even JPMorgan Chase & Co. has adopted a more bullish tone in the short term. The bank recently turned optimistic on U.S. stocks, believing low trading volumes and cautious positioning after the early-April selloff, combined with hopes of progress in trade talks, could fuel more gains. Still, they caution that momentum might evaporate quickly if tariffs begin to weigh on the economy.

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“The de-escalation trade has more room to run,” said Andrew Tyler, head of global market intelligence at JPMorgan. But he also warned this does not mean the market is in the clear.

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Retail investors have played a central role in the latest rebound. According to JPMorgan strategist Emma Wu, retail traders poured a record $40 billion into U.S. stocks in April. Similarly, Bank of America reported that its individual clients have been net buyers for 19 consecutive weeks—the longest such streak to start a year since 2008.

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Meanwhile, institutional investors remain cautious. According to Deutsche Bank, they’ve moved from being underweight U.S. stocks to a more neutral stance. However, they’re unlikely to fully embrace equities unless the Trump administration clearly steps back from its aggressive trade stance.

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“We’ve been cautious since late last year,” said Keith Buchanan of GLOBALT Investments. “We’re sitting on cash, but it’s hard to understand how the market can find a bottom without clarity.”

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That lack of clarity continues to weigh on corporate America. Several companies, including Delta and American Airlines, have scrapped full-year earnings guidance due to economic unpredictability. Amazon, too, issued a weaker-than-expected outlook for operating income, warning of a more difficult business environment ahead. Bloomberg Intelligence notes that the overall earnings guidance from S&P 500 companies is currently at its worst since the COVID-19 pandemic began.

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Chris Zaccarelli, CIO at Northlight Asset Management, said uncertainty creates major risks. “We don’t know who the winners and losers will be, and that increases the chances of getting whipsawed,” he said. Much of this instability, he believes, stems from the Trump administration’s policies.

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The trade landscape remains tense, particularly with China. Although Chinese state media reported the U.S. had reached out for talks, Chinese officials appear increasingly determined to push back against U.S. pressure. While discussions with other countries like India, Japan, and South Korea seem closer to resolution, actual deals may take months or even years to finalize.

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“Markets are reacting to optimistic comments from Trump’s team, but trade agreements take time,” said Thomas Thornton, founder of Hedge Fund Telemetry. “In a world of instant gratification, expectations are often unrealistic.”

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Ultimately, it’s the weakening economic indicators that could prove most concerning. Consumer confidence is near its lowest levels since the 1970s, and long-term inflation expectations are the highest since 1981, according to the University of Michigan. Kathryn Rooney Vera of StoneX Group warns that this soft data could soon translate into harder hits to the economy.

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“Even if a trade deal is reached, uncertainty and volatility are already damaging sentiment, spending, and investment,” she said.

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