US stocks pause after historic rally: What’s next for the market?

2 minutes read

05 May 2025

US stocks pause after historic rally: What’s next for the market?

Last week, Wall Street witnessed something rare and remarkable. The S&P 500 notched its longest winning streak in over 20 years, rallying for nine consecutive days. The surge erased losses from earlier tariff fears and sent a wave of optimism through the market. But as Monday dawned, that momentum took a breather. Futures for the S&P 500, Dow Jones, and Nasdaq all moved lower, indicating that investors are giving themselves a breather after the record run.

A rally driven by hope and guarded optimism

The recent rally was spurred by a combination of factors, the top of which were renewed expectations of breakthroughs in U.S.-China trade negotiations. Chinese authorities have shown a willingness to negotiate, and there are reports that Beijing is willing to talk. Although no formal deals have been signed, this easing of tensions has boosted investor sentiment. "We do see this run-up being more on excitement, actual-not just fundamentals, but an actual change," said Ryan Kmans, chief investment officer at Dun & Associates Investment Counsel.

Accompanying the upbeat tone was a robust U.S. employment report of 177,000 new jobs created in April, better than forecasts and maintaining unemployment at 4.2%. This information implies the economy continues to be robust, backing up the notion that the Federal Reserve will leave interest rates unchanged at its next meeting. However, the market response to these fundamentals is divided. Morgan Stanley analysts characterise 2025 as probably a "pause" year for equities, anticipating single-digit returns with continued volatility.

Oil prices were also a factor in Monday's market sentiment. Following OPEC+'s announcement to add supply in June, crude prices fell almost 4%, dragging oil down more than 20% year to date. This fall alleviates inflation fears but also indicates doubt about global demand.

Navigating the week ahead: Fed, earnings, and economic signals

Investors have a crucial week ahead with a number of important events in the pipeline. The Federal Reserve policy meeting begins on Tuesday, and although the market generally anticipates no rate change, any indication of upcoming monetary action might trigger volatility. Major companies' earnings releases, including Disney, AMD, and Palantir, will provide new information about corporate well-being against a complicated economic environment.

Economic statistics for manufacturing and unemployment claims will continue to guide market direction. The recent market fluctuations have highlighted the sensitivity of investors to policy announcements and economic metrics. As Morgan Stanley points out, the current market volatility indicates a "pause" and not a stop to the bull trend, with investors balancing risks emanating from tariffs, inflation, and geopolitical uncertainty.

Under such conditions, the nine-day winning streak of the market is a testament to prudent optimism and not unbridled enthusiasm. According to one analyst, the rally was "more on excitement actual," which means that investors are reacting to genuine changes but remain cautious. Line graph showing the S&P 500 index rebounding from April 2 to April 11, with index values rising steadily after an initial drop, labeled with dates and Winvesta branding.

For investors and traders, the message is unmistakable: after a record stretch, it's time to remain vigilant, watch the Fed intently, and be prepared for volatility as the market absorbs new information and earnings. The narrative of 2025's market remains to be written, and this week may contain crucial chapters.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.