Market Whiplash: NASDAQ and Russell 2000 Briefly Enter Bear Territory, Rebound Now Overdone

Markets have experienced a significant rebound after a drop following 'Liberation Day' on April 2nd, with the NASDAQ and Russell 2000 briefly entering correction territory. The rebound is now considered overdone, and investors should be cautious as the market may be due for a pullback.

Markets have experienced a significant rebound following the drop on 'Liberation Day' on April 2nd, with the NASDAQ and Russell 2000 briefly entering correction territory. The rebound is now considered overdone, and investors should be cautious as the market may be due for a pullback.

The Trump administration's apparent retreat from its most severe tariff threats has led to a recovery in equity sectors. Stock indices such as the S&P 500, Dow Jones Industrial Average (DJI), and the NASDAQ have gained slightly, while bond yields have fallen [1]. Large and mid-cap stocks have clawed back 70-85% of their post-Liberation Day losses, and small-cap stocks have recovered 65% [1]. Growth sectors have rebounded more than value sectors, with market cap-weighted indices outperforming equal-weighted indices [1].

However, the U.S. dollar remains weaker, and the 10-year Treasury yield has risen by 9 basis points, while the 2-year yield has fallen by 11 basis points since April 1 [1]. Tavis C. McCourt, institutional equity strategist at Raymond James, noted that while earnings season has been perceived as positive, it was due to the extremely negative sentiment going into it [1]. The 2025 consensus EPS has decreased by about 2% in the S&P 500 and 4-5% for small/mid-cap stocks [1].

The rebound has been uneven across sectors. Technology, consumer discretionary, and communication services have shown strong recovery, while energy and health care have lagged [1]. The Russell 2000, representing small-cap stocks, has lagged behind major indices, highlighting the continued pressure on small caps due to the trade war [2].

The rebound in the traditional market has had an impact on the crypto market as well. Bitcoin and Ethereum have experienced slight dips, and smaller altcoins have seen steeper declines [2]. The underperformance of small caps has led to a cautious approach among traders, with reduced buying pressure in crypto markets [2].

Investors should remain cautious as the market may be due for a pullback. The rebound is considered overdone, and the market's reaction to the trade war and tariff negotiations remains uncertain. The intersection of AI and crypto markets offers a unique angle, with AI-related tokens showing resilience despite market stress [2].

References:
[1] https://seekingalpha.com/news/4436349-this-is-how-different-sectors-styles-and-groups-have-recovered-since-liberation-day
[2] https://blockchain.news/flashnews/russell-2000-lags-behind-as-dow-nasdaq-and-s-p-500-futures-surge-trade-war-hits-small-caps-hard