Stock Market Rally at Risk After Tariff Reversal
Sevens Report Warns of Potential ‘Sell-the-News’ Market Reaction Amid Trade Optimism
The U.S. stock market may struggle to extend recent gains—even if new trade deals are announced—because much of the tariff relief has already been priced in, according to Sevens Report Research.
“We could even see a ‘sell-the-news’ move once some trade deals are announced,” warned Tom Essaye, founder of Sevens Report Research, in a note Monday. He noted that the Trump administration has significantly scaled back its sweeping April 2 “liberation day” tariff plan, delaying implementation and exempting key sectors like semiconductors, electronics, pharmaceuticals, and autos.
The S&P 500 fell 0.6% on Monday to 5,650.38 after logging a nine-day winning streak, the longest since 2004. But despite the recovery from early April losses, Essaye remains skeptical that current momentum can continue. “The recent developments aren’t enough to push the S&P 500 sustainably higher,” he said, maintaining a target range of 5,100 to 5,500.
Investors have closely tracked trade negotiations, concerned that higher tariffs will weigh on growth and raise consumer costs. While easing tensions with China have buoyed sentiment, Essaye cautioned that risks remain. “Tariffs will still be significantly higher than they were at the start of the year, and that’s a headwind,” he said.
The S&P 500 has trimmed earlier losses but remains down 3.9% year-to-date after April marked its third straight monthly decline. Broader indexes, including the Nasdaq and Dow, also ended lower on Monday.
“Economic data has been solid, but we haven’t felt the real impact of tariffs yet,” Essaye said. “The risk to growth is clearly to the downside.”
In this environment, he favors defensive market sectors such as utilities, consumer staples, and healthcare. He also recommends diversification through equal-weighted and low-volatility ETFs, such as the Invesco S&P 500 Equal Weight ETF (RSP), the iShares MSCI USA Min Vol Factor ETF (USMV), and the iShares MSCI USA Quality Factor ETF (QUAL).
“While the past month hasn’t been as bad as feared, ‘not as bad’ isn’t the same as good,” Essaye concluded. “Markets may be pricing in more strength than the fundamentals currently support.”
