As the S&P 500 Prepares for a Return to 6,000, Investors Need to Follow Two Rules

U.S. stocks have staged an impressive comeback, nearly reclaiming the 6,000 level on the S&P 500 after enduring a steep decline over the past two months. This milestone follows a period in which the index plunged nearly 20%, officially entering a bear market.

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While big round numbers like 6,000 don’t always carry technical significance, they often act as psychological benchmarks. Once surpassed, they can either reinforce investor optimism and fuel further gains or prompt caution among traders unsure whether the rally can be sustained.

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The rebound has helped restore value to many retirement accounts and portfolios, which had taken a hit after President Donald Trump’s announcement of sweeping tariffs on April 2 sent shockwaves through the equity markets. Since then, stocks have continued to rise, even as ongoing legal disputes and court rulings added more uncertainty to the already unpredictable trade policy landscape.

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Despite these complications, investor sentiment has remained mostly upbeat. Analysts suggest this is largely due to the perception that the most damaging outcomes from the tariffs may now be unlikely. This shift in tone has helped lift the S&P 500 back to around 5,970 as of Wednesday, representing a 19.8% rebound from its April 8 low, according to data from Dow Jones Market Data.

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Still, solidifying a position above the 6,000 level won’t be easy. “The number itself doesn’t matter,” said Donald Calcagni, chief investment officer at Mercer Advisors. “What matters more are earnings, interest rates, and valuation levels.” He noted that the S&P 500’s current price-to-earnings ratio, estimated at about 21, indicates valuations may be stretched, especially with looming uncertainties on multiple economic and policy fronts.

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Richard Steinberg, chief market strategist at Focus Partners Wealth, echoed those concerns. He warned that the market could struggle to maintain momentum, particularly with the Federal Reserve, corporations, and investors all hesitant due to an unclear policy environment.

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He specifically pointed to the Republican tax and spending bill that’s still awaiting Senate approval. “It’s a tough road for the president,” Steinberg said, suggesting that even within the Republican party, the bill may face significant resistance. “You can’t always get what you want,” he added, noting that markets might actually favor a more restrained approach.

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Elon Musk, Tesla CEO and formerly one of Trump’s key advisers, recently criticized the proposed legislation, calling it an “abomination,” which further fueled market unease.

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Economic data also contributed to investor caution midweek. Reports showed a surprising slowdown in private-sector job growth in May, raising concerns about potential weaknesses developing in the broader economy. Analysts fear this could be the first sign of cracks forming in what had appeared to be a solid economic foundation.

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Calcagni believes the stock market is currently overvalued by as much as 10% to 15%, and he anticipates a possible downturn once a temporary pause on Trump’s tariffs expires around July 9. “The next shoe to drop,” he predicted, may arrive at that time if the White House resumes a more aggressive trade policy.

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Despite this cautious outlook, some major Wall Street firms are turning more optimistic. Barclays recently raised its year-end target for the S&P 500 from 5,900 to 6,050, joining a list of banks that are slightly upgrading their market forecasts. As of the latest figures, the index remains 2.8% below its all-time closing high from February 19.

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Even so, concerns about the broader economic landscape persist, particularly around tariffs and the rising federal deficit. Calcagni emphasized that investors should not rely solely on U.S. stocks and bonds. “It’s the bond market that’s going to finance all this debt,” he said, suggesting that bond yields and market reactions will ultimately hold significant influence.

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In fact, a recent report from the Congressional Budget Office estimated that the Republican spending bill could increase the federal deficit by $2.4 trillion. Moreover, historical data from the CBO shows a pattern of underestimating deficits over the past 25 years, adding further weight to those concerns.

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Calcagni concluded with two pieces of advice for investors: First, “This is not a hero’s market,” meaning it's unwise to gamble on a single stock or asset class. And second, “Yesterday’s safe-haven assets will not be tomorrow’s safe-haven assets,” indicating that traditional investment strategies may need to evolve as the market adapts to new economic realities.

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