Stocks have been through a lot this year, with the S&P 500 index losing almost a fifth of its value in the six weeks after peaking on February 19th. The index has since recovered a little over half of the lost ground from the April 8th bottom.
Many in the market are hoping that the worst is behind us and that the rebound from the April 8th bottom is for real.
Tariffs drove the market sell-off, with the actual announced levies turning out to be a lot bigger than many in the market had expected. And then there is the China equation, where the announced tariff levels have literally reached unsustainable levels.
Several in the market have now come around to the view that while plenty of tariffs-related issues remain unresolved, we now know what we are dealing with. We don’t know when the currently negotiated trade deals will come into effect, but we know that is when the clouds will fully lift.
A constructive view of the economy and market expects the major stock market indexes to remain range bound as these bilateral trade negotiations take place. While tariffs-induced uncertainty will have a bearing on near-term growth trends, the U.S. economy’s fundamentals remain rock solid. This view is also optimistic about the Trump administration’s non-trade policy agenda, including taxes and regulatory reform.
Market bears see this market optimism as without a fundamental basis. This line of thinking sees the tariffs-induced uncertainty to be severe enough to push the economy into a recession. Market bears don’t expect the Fed to come to the economy’s aid, as a result of tariff’s inflationary effects. Worries about macroeconomic fiscal imbalances and stock market valuation also show up in the bearish view of the market.
The interplay of these competing views will determine how the market performs in the coming months and quarters. To that end, let’s examine the landscape of bullish and bearish arguments to help you make up your own mind.
Let's talk about the Bull case first.
The Economy’s Strong Foundation: The U.S. economy has literally been the envy of the world over the last few years and those fundamentals are still intact despite renewed worries about their durability. It is this inherent resilience that allowed the U.S. economy to continue growing in the face of extraordinary Fed tightening.
Growth is undoubtedly decelerating, as we saw in the 2025 Q1 GDP report and what the Zacks economic team’s 2025 estimate of +1.8% shows. This would follow GDP growth rates of +2.8% in 2024 and +2.9% in 2023, showing that the economy entered the current period of policy uncertainty in excellent shape.
The modestly negative GDP print for Q1 is unwelcome, but you have to look ‘under the hood’ to get a true sense of the economy’s resilience. I am not saying that you should disregard the -0.3% GDP growth pace, but be mindful that surging imports ahead of tariffs reduced GDP growth rate by 5 percentage points. Had it not been for the unusually elevated imports, Q1 GDP growth would be modestly positive.
Recession risks have increased, as growth expectations have come down in response to the cumulative effects of tighter Fed policy and the ongoing tariff uncertainty. But a stable consumer and business spending backdrop on the back of a very strong labor market, as reconfirmed by Friday’s April jobs report, ensures that growth remains positive, albeit at a lowered trajectory.
This is beneficial to the central bank’s inflation fight, with moderating economic growth pushing inflation readings towards the Fed’s 2% target. The Fed has already indicated two interest rate cuts this year, though they aren’t expected to announce a rate cut at the May 7th meeting.
All in all, the strong pillars of the U.S. economic foundation run contrary to what are typically signs of trouble ahead on the horizon.
The Fed’s Easing Cycle: The Trump administration’s trade agenda has added an element of uncertainty to the market’s inflation and Fed expectations. The bulls see the inflation issue as headed towards a resolution to the central bank’s satisfaction, allowing the Fed to continue with easing policy.
This view doesn’t see tariffs as inherently inflationary, but acknowledges that the issue will likely prompt the Fed to adopt a wait-and-see approach and implement fewer rate cuts this year than would otherwise be the case.
The Fed is unlikely to announce a rate cut at its May 7th meeting, which follows the pattern set at the first two meetings of the year in January and March. This is no surprise for the market as expectations of the number of rate cuts in 2025 had already come down following last December’s Fed meeting. While inflation has come down significantly over the past year and now remains within striking distance of their target, they would like to see continued progress as they cut rates further.
Market bulls would prefer to have more rather than fewer rate cuts, but they can appreciate the central bank’s logic. The wait-and-see approach has the added benefit of giving the Fed time to size up the effects of the Trump administration’s policies, particularly on the tariffs front.
With the overall policy bias firmly in the easing mode, the expectation is that the next rate cut will arrive after the Summer, most likely in the September 16–17 meeting.
Continued . . .
------------------------------------------------------------------------------------------------------
5 Stocks Set to Double: Sunday Deadline
There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to crush the market and gain +100% and more in the months ahead:
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
We can’t guarantee future performance, but previous editions have racked up gains of +143%, +498%, and even +673%.¹
Deadline to download the new report is midnight Sunday, May 4.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Valuation & Earnings: Tied to the economic and interest rate outlook is the question of stock market valuation that still looks reasonable given the expected interest rate trajectory.
The S&P 500 index is currently trading at 20.6X forward 12-month earnings estimates, up from 15.6X at the end of September 2022, but below the peak multiple of 24.2X in August 2020. Importantly, the valuation multiple has compressed almost 9% from January’s 22.6X level. It is hard to consider this valuation level as excessive or stretched, particularly given the Fed easing policy stance.
The appropriateness or otherwise of valuation multiples has to be seen in the context of interest rate outlook. Valuation multiples typically expand when the Fed is easing policy, particularly when the catalyst for the loosened policy is confidence on the inflation front instead of growth fears.
Earnings outlook is a key part of the valuation discussion. Contrary to the earlier doom-and-gloom fears, the ongoing 2025 Q1 earnings season is reaffirming the resiliency and stability of the corporate profitability picture, a trend that is expected to continue in the coming quarters as well.
What we are seeing this earnings season is that while companies in a number of industries are unable to have adequate visibility in their business, there are many others that continue to drive sales and earnings growth even in this environment. We are seeing many of these leaders from a variety of sectors, including Technology, come out with strong quarterly results and describe trends in their businesses in reassuring terms despite the tariffs uncertainty.
Current consensus expectations for this year and next reflect strong growth that is broad-based and not driven by one or two sectors. While estimates have started coming down, the adjustment process is smooth and reflective of the decelerated macroeconomic growth outlook rather than a precipitous fall in profitability.
In the absence of a nasty economic downturn, the earnings picture can actually serve as a tailwind for the stock market in an environment of easing Fed policy.
Let's see what the Bears have to say in response.
The Market’s Fed Exuberance: The Fed will most likely keep interest rates unchanged on May 7th, despite unconventional public pronouncements from the Trump administration to do otherwise. The market had come around to expecting this outcome after the March meeting, but Friday’s strong April jobs report has effectively confirmed it.
The expectation is for two rate cuts this year, with some in the market hoping for the June meeting to bring the next rate cut provided incoming economic data over the coming weeks remain supportive.
The June timeline is likely nothing more than wishful thinking, as it will be next to impossible for the Fed to start cutting rates at that meeting since no tangible progress on the inflation front will have taken place by then. This is hardly a far off scenario given the Trump administration’s policy agenda on the tariffs and immigration fronts. Many in the market see the ongoing elevated yields on longer-dated treasury bonds as reflective of such worries.
Tied to the first risk is the prospect that the economy’s true health may be far more fragile than the modest headline negative Q1 GDP reading suggests. Low income households have been struggling for a while, but anecdotal evidence from earnings calls suggest that even better off consumers are getting more cautious in their spending plans. On top of this is the diminished business spending outlook as a result of policy uncertainty, at least over the near term.
In the worst case scenario, stalled progress on the inflation front may stop the Fed from easing policy even as the economy continues to weaken further; this is the so-called ‘stagflation’ scenario. But even if that isn’t the case and the Fed starts easing in June or any of its subsequent meetings, the decelerating momentum in the economy may be hard to stop by then.
The Valuation Reality Check: Given the bears’ view that the prudent course for the Fed is to be in no hurry to start easing policy in the absence of any issues in the economy, they see no fundamental reason for valuation multiples to expand.
Higher-for-longer interest rates should have a direct impact on the prices of all asset classes, stocks included. Everything else is constant, investors will be using a higher discount rate, a function of interest rates, to value the future cash flows from the companies they want to invest in.
This means lower values for stocks in a higher interest rate environment.
The Earnings Growth Question: Current consensus earnings estimates show +7.7% growth this year and +13.2% growth in 2026, which follows the +10.6% earnings growth in 2024.
Market bears see these earnings growth expectations as inconsistent with an economy that is fast losing its growth momentum. We have started to see this in the revisions trend, with this year’s estimates steadily coming down in recent weeks and the trend expected to only accelerate in the days ahead as the trade issue remains unresolved.
Notwithstanding the tough going in the manufacturing sector and the growth implications of the still elevated treasury yields despite Fed easing, earnings expectations for this year and next will need to come down significantly to get them in-line with the economic ground reality.
Where Do I Stand?
While I acknowledge that the next rate cut will most likely get pushed beyond the Summer months, I am skeptical of the higher-for-longer Fed policy view and see this scenario as nothing more than a low-probability event.
The current Fed Funds rate level is almost twice what central bank officials and economists see as the ‘neutral’ policy rate. At the ‘neutral’ policy rate level, Fed policy is neither ‘stimulating’ nor ‘restricting’ economic activities.
Even if further progress on the inflation front is a lot slower than what the Fed and the market is projecting at present, the central bank has plenty of cushion in its policy arsenal to start easing policy without adversely affecting its inflation fight. This doesn’t mean that the next rate cut is around the corner, but it does suggest that they don’t need to wait for an extended period to consolidate the inflation gains.
Regular readers of my earnings commentary know that the earnings picture continues to be resilient, even though estimates have started to come down lately.
The overall policy thrust of the Trump administration is expected to be pro-growth and pro-market, but it is nevertheless reasonable to expect some period of market tentativeness as we sort through the bilateral trade negotiations. But we remain confident that investors will soon come around to our view of inflation, earnings and the much more positive times ahead after a short period of volatility.
How to Take Advantage
As this positivity unfolds, we can take advantage by building positions in great stocks with solid fundamentals and clear growth prospects.
That's why I'm inviting you to download our just-released Special Report, 5 Stocks Set to Double. Each stock was handpicked by a Zacks expert as their personal favorite to have the best chance of gaining +100% and more in the months ahead.
While we can’t guarantee future success, previous editions of this report have racked up some huge gains. Examples include Boston Beer Co. +143.0%, WW +498.3% and Tesla +673.0%.¹
The earlier you get into these new stocks the higher their profit potential:
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
To put the odds of success even more in your favor, you'll also gain 30-day access to our unique arrangement called Zacks Investor Collection.
It gives you real-time picks and commentary from all our long-term portfolios designed to identify trades with the highest probability of success.
Last year alone, they closed 44 double and triple-digit wins. While not all picks can be winners, recent gains reached as high as +198.4%, +200.3% and +263.2%.¹
Plus, it includes Zacks Premium research so you can find winning stocks, ETFs and mutual funds on your own.
Keep in mind, the opportunity to download our 5 Stocks Set to Double Special Report ends at midnight on Sunday, May 4.
Look into 5 Stocks Set to Double and Zacks Investor Collection now >>
Thanks and good trading,
Sheraz
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios. He invites you to access Zacks Investor Collection.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
Image: Bigstock
How to Make the Most of Today's Market
Stocks have been through a lot this year, with the S&P 500 index losing almost a fifth of its value in the six weeks after peaking on February 19th. The index has since recovered a little over half of the lost ground from the April 8th bottom.
Many in the market are hoping that the worst is behind us and that the rebound from the April 8th bottom is for real.
Tariffs drove the market sell-off, with the actual announced levies turning out to be a lot bigger than many in the market had expected. And then there is the China equation, where the announced tariff levels have literally reached unsustainable levels.
Several in the market have now come around to the view that while plenty of tariffs-related issues remain unresolved, we now know what we are dealing with. We don’t know when the currently negotiated trade deals will come into effect, but we know that is when the clouds will fully lift.
A constructive view of the economy and market expects the major stock market indexes to remain range bound as these bilateral trade negotiations take place. While tariffs-induced uncertainty will have a bearing on near-term growth trends, the U.S. economy’s fundamentals remain rock solid. This view is also optimistic about the Trump administration’s non-trade policy agenda, including taxes and regulatory reform.
Market bears see this market optimism as without a fundamental basis. This line of thinking sees the tariffs-induced uncertainty to be severe enough to push the economy into a recession. Market bears don’t expect the Fed to come to the economy’s aid, as a result of tariff’s inflationary effects. Worries about macroeconomic fiscal imbalances and stock market valuation also show up in the bearish view of the market.
The interplay of these competing views will determine how the market performs in the coming months and quarters. To that end, let’s examine the landscape of bullish and bearish arguments to help you make up your own mind.
Let's talk about the Bull case first.
The Economy’s Strong Foundation: The U.S. economy has literally been the envy of the world over the last few years and those fundamentals are still intact despite renewed worries about their durability. It is this inherent resilience that allowed the U.S. economy to continue growing in the face of extraordinary Fed tightening.
Growth is undoubtedly decelerating, as we saw in the 2025 Q1 GDP report and what the Zacks economic team’s 2025 estimate of +1.8% shows. This would follow GDP growth rates of +2.8% in 2024 and +2.9% in 2023, showing that the economy entered the current period of policy uncertainty in excellent shape.
The modestly negative GDP print for Q1 is unwelcome, but you have to look ‘under the hood’ to get a true sense of the economy’s resilience. I am not saying that you should disregard the -0.3% GDP growth pace, but be mindful that surging imports ahead of tariffs reduced GDP growth rate by 5 percentage points. Had it not been for the unusually elevated imports, Q1 GDP growth would be modestly positive.
Recession risks have increased, as growth expectations have come down in response to the cumulative effects of tighter Fed policy and the ongoing tariff uncertainty. But a stable consumer and business spending backdrop on the back of a very strong labor market, as reconfirmed by Friday’s April jobs report, ensures that growth remains positive, albeit at a lowered trajectory.
This is beneficial to the central bank’s inflation fight, with moderating economic growth pushing inflation readings towards the Fed’s 2% target. The Fed has already indicated two interest rate cuts this year, though they aren’t expected to announce a rate cut at the May 7th meeting.
All in all, the strong pillars of the U.S. economic foundation run contrary to what are typically signs of trouble ahead on the horizon.
The Fed’s Easing Cycle: The Trump administration’s trade agenda has added an element of uncertainty to the market’s inflation and Fed expectations. The bulls see the inflation issue as headed towards a resolution to the central bank’s satisfaction, allowing the Fed to continue with easing policy.
This view doesn’t see tariffs as inherently inflationary, but acknowledges that the issue will likely prompt the Fed to adopt a wait-and-see approach and implement fewer rate cuts this year than would otherwise be the case.
The Fed is unlikely to announce a rate cut at its May 7th meeting, which follows the pattern set at the first two meetings of the year in January and March. This is no surprise for the market as expectations of the number of rate cuts in 2025 had already come down following last December’s Fed meeting. While inflation has come down significantly over the past year and now remains within striking distance of their target, they would like to see continued progress as they cut rates further.
Market bulls would prefer to have more rather than fewer rate cuts, but they can appreciate the central bank’s logic. The wait-and-see approach has the added benefit of giving the Fed time to size up the effects of the Trump administration’s policies, particularly on the tariffs front.
With the overall policy bias firmly in the easing mode, the expectation is that the next rate cut will arrive after the Summer, most likely in the September 16–17 meeting.
Continued . . .
------------------------------------------------------------------------------------------------------
5 Stocks Set to Double: Sunday Deadline
There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to crush the market and gain +100% and more in the months ahead:
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
We can’t guarantee future performance, but previous editions have racked up gains of +143%, +498%, and even +673%.¹
Deadline to download the new report is midnight Sunday, May 4.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Valuation & Earnings: Tied to the economic and interest rate outlook is the question of stock market valuation that still looks reasonable given the expected interest rate trajectory.
The S&P 500 index is currently trading at 20.6X forward 12-month earnings estimates, up from 15.6X at the end of September 2022, but below the peak multiple of 24.2X in August 2020. Importantly, the valuation multiple has compressed almost 9% from January’s 22.6X level. It is hard to consider this valuation level as excessive or stretched, particularly given the Fed easing policy stance.
The appropriateness or otherwise of valuation multiples has to be seen in the context of interest rate outlook. Valuation multiples typically expand when the Fed is easing policy, particularly when the catalyst for the loosened policy is confidence on the inflation front instead of growth fears.
Earnings outlook is a key part of the valuation discussion. Contrary to the earlier doom-and-gloom fears, the ongoing 2025 Q1 earnings season is reaffirming the resiliency and stability of the corporate profitability picture, a trend that is expected to continue in the coming quarters as well.
What we are seeing this earnings season is that while companies in a number of industries are unable to have adequate visibility in their business, there are many others that continue to drive sales and earnings growth even in this environment. We are seeing many of these leaders from a variety of sectors, including Technology, come out with strong quarterly results and describe trends in their businesses in reassuring terms despite the tariffs uncertainty.
Current consensus expectations for this year and next reflect strong growth that is broad-based and not driven by one or two sectors. While estimates have started coming down, the adjustment process is smooth and reflective of the decelerated macroeconomic growth outlook rather than a precipitous fall in profitability.
In the absence of a nasty economic downturn, the earnings picture can actually serve as a tailwind for the stock market in an environment of easing Fed policy.
Let's see what the Bears have to say in response.
The Market’s Fed Exuberance: The Fed will most likely keep interest rates unchanged on May 7th, despite unconventional public pronouncements from the Trump administration to do otherwise. The market had come around to expecting this outcome after the March meeting, but Friday’s strong April jobs report has effectively confirmed it.
The expectation is for two rate cuts this year, with some in the market hoping for the June meeting to bring the next rate cut provided incoming economic data over the coming weeks remain supportive.
The June timeline is likely nothing more than wishful thinking, as it will be next to impossible for the Fed to start cutting rates at that meeting since no tangible progress on the inflation front will have taken place by then. This is hardly a far off scenario given the Trump administration’s policy agenda on the tariffs and immigration fronts. Many in the market see the ongoing elevated yields on longer-dated treasury bonds as reflective of such worries.
Tied to the first risk is the prospect that the economy’s true health may be far more fragile than the modest headline negative Q1 GDP reading suggests. Low income households have been struggling for a while, but anecdotal evidence from earnings calls suggest that even better off consumers are getting more cautious in their spending plans. On top of this is the diminished business spending outlook as a result of policy uncertainty, at least over the near term.
In the worst case scenario, stalled progress on the inflation front may stop the Fed from easing policy even as the economy continues to weaken further; this is the so-called ‘stagflation’ scenario. But even if that isn’t the case and the Fed starts easing in June or any of its subsequent meetings, the decelerating momentum in the economy may be hard to stop by then.
The Valuation Reality Check: Given the bears’ view that the prudent course for the Fed is to be in no hurry to start easing policy in the absence of any issues in the economy, they see no fundamental reason for valuation multiples to expand.
Higher-for-longer interest rates should have a direct impact on the prices of all asset classes, stocks included. Everything else is constant, investors will be using a higher discount rate, a function of interest rates, to value the future cash flows from the companies they want to invest in.
This means lower values for stocks in a higher interest rate environment.
The Earnings Growth Question: Current consensus earnings estimates show +7.7% growth this year and +13.2% growth in 2026, which follows the +10.6% earnings growth in 2024.
Market bears see these earnings growth expectations as inconsistent with an economy that is fast losing its growth momentum. We have started to see this in the revisions trend, with this year’s estimates steadily coming down in recent weeks and the trend expected to only accelerate in the days ahead as the trade issue remains unresolved.
Notwithstanding the tough going in the manufacturing sector and the growth implications of the still elevated treasury yields despite Fed easing, earnings expectations for this year and next will need to come down significantly to get them in-line with the economic ground reality.
Where Do I Stand?
While I acknowledge that the next rate cut will most likely get pushed beyond the Summer months, I am skeptical of the higher-for-longer Fed policy view and see this scenario as nothing more than a low-probability event.
The current Fed Funds rate level is almost twice what central bank officials and economists see as the ‘neutral’ policy rate. At the ‘neutral’ policy rate level, Fed policy is neither ‘stimulating’ nor ‘restricting’ economic activities.
Even if further progress on the inflation front is a lot slower than what the Fed and the market is projecting at present, the central bank has plenty of cushion in its policy arsenal to start easing policy without adversely affecting its inflation fight. This doesn’t mean that the next rate cut is around the corner, but it does suggest that they don’t need to wait for an extended period to consolidate the inflation gains.
Regular readers of my earnings commentary know that the earnings picture continues to be resilient, even though estimates have started to come down lately.
The overall policy thrust of the Trump administration is expected to be pro-growth and pro-market, but it is nevertheless reasonable to expect some period of market tentativeness as we sort through the bilateral trade negotiations. But we remain confident that investors will soon come around to our view of inflation, earnings and the much more positive times ahead after a short period of volatility.
How to Take Advantage
As this positivity unfolds, we can take advantage by building positions in great stocks with solid fundamentals and clear growth prospects.
That's why I'm inviting you to download our just-released Special Report, 5 Stocks Set to Double. Each stock was handpicked by a Zacks expert as their personal favorite to have the best chance of gaining +100% and more in the months ahead.
While we can’t guarantee future success, previous editions of this report have racked up some huge gains. Examples include Boston Beer Co. +143.0%, WW +498.3% and Tesla +673.0%.¹
The earlier you get into these new stocks the higher their profit potential:
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
To put the odds of success even more in your favor, you'll also gain 30-day access to our unique arrangement called Zacks Investor Collection.
It gives you real-time picks and commentary from all our long-term portfolios designed to identify trades with the highest probability of success.
Last year alone, they closed 44 double and triple-digit wins. While not all picks can be winners, recent gains reached as high as +198.4%, +200.3% and +263.2%.¹
Plus, it includes Zacks Premium research so you can find winning stocks, ETFs and mutual funds on your own.
Keep in mind, the opportunity to download our 5 Stocks Set to Double Special Report ends at midnight on Sunday, May 4.
Look into 5 Stocks Set to Double and Zacks Investor Collection now >>
Thanks and good trading,
Sheraz
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios. He invites you to access Zacks Investor Collection.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.