Are Investors Wrong About the U.S.?

Trade Relief and Pessimism Make the S&P 500 Look More Attractive

U.S. stock futures were pointing up early Friday, setting the stage for a stronger finish to a rollercoaster week.

Much of the optimism stems from President Trump’s unexpected midweek shift on tariffs. Markets are reading that as a sign trade tensions may have peaked — investors see it, at least for now. Still, plenty of caution remains. Skeptics argue that the 90-day tariff pause just delays uncertainty, especially with Chinese imports still facing a steep 145% tariff.

Conflicting takes like these are what drive the market — and they’re even showing up within the same firms.

Case in point: On Thursday, UBS strategist Bhanu Baweja warned investors to sell into rallies, saying the S&P 500 could fall below 5,000 if the economic impact of tariffs worsens.

But on Friday, a different UBS team — led by Global Wealth Management CIO Mark Haefele — took a more bullish stance, upgrading U.S. equities to “attractive” and offering three main reasons why:

1. Policy Flexibility: Trump’s decision to pause tariffs, despite China’s still-high rates, shows he’s paying attention to market volatility. UBS calls this a sign of a possible “Trump put” — a hint that the administration may step in if things get too shaky.
2. Brighter Outlook Ahead: While risks like disrupted supply chains and delisting of Chinese firms remain, UBS expects news flow to improve. With multiple countries signaling a willingness to negotiate, potential deals could boost investor confidence and shift the focus back toward long-term earnings growth — potentially returning in 2026.
3. Volatility Sets the Stage for Gains: Historically, when the VIX (the market’s “fear gauge”) rises above 40, the S&P 500 tends to bounce back strongly — averaging 30% gains over the next 12 months with a 95% chance of a positive return. The VIX hit 60 midweek and hovered around 44 Friday morning. April 9’s massive 9.5% rally — the biggest single-day gain since 2008 — adds to the case for a rebound.

Adding fuel to the contrarian fire: investor sentiment is deeply bearish. The latest AAII survey shows 58.9% of investors expect stocks to keep falling. That’s down slightly from last week’s peak but still unusually high. UBS points out that such pessimism has often preceded big market rallies, with the S&P 500 posting an average 27% gain in the year following similar sentiment extremes.

While UBS still sees risks if tariffs stay in place, they now think the odds of a major economic downturn have dropped. They’ve revised their worst-case S&P 500 target up from 4,000 to 4,500 — a level more in line with a normal recession, rather than a full-blown crisis.