S&P 500 Surges 0.8% to 6,141.02 on Middle East Ceasefire Optimism

The S&P 500 index closed at 6,141.02 points on Thursday, marking a 0.8% increase and nearing its historical high. This surge comes despite ongoing uncertainties surrounding trade tariffs and regional stability. The rebound is driven by an unexpected easing of tensions in the Middle East and a resurgence of optimism in the stock market.

The primary catalyst for this market rally is the geopolitical de-escalation in the Middle East, particularly the ceasefire between Israel and Iran, which has led to a fall in oil prices. This return to calm has provided a soothing signal for the markets, which had been burdened by fears of a large-scale energy conflict. Investors are also betting on a moderate scenario regarding U.S. trade policy, with many believing that the U.S. president will eventually back down from his most severe tariff threats.

Key indicators of this shift in sentiment include the S&P 500's 0.8% jump on Thursday, a recovery of over 23% since April lows, and an 8.3% gain since April 2, when the trade war was relaunched. The markets are priced for an optimistic scenario, with 50% tariffs on European imports suspended until July 9 and the trade truce with China remaining in place until mid-August. However, this respite is based on temporary factors, and no concrete progress has been made in negotiations with the European Union or China. Volatility could quickly return if geopolitical tensions resume or if tariff threats become effective.

While geopolitical relief allowed for an immediate rebound, the strength of corporate results and the performance of the technology sector have added substance to this rally. First-quarter results generally exceeded expectations, with heavyweights such as Nvidia, Microsoft, Meta, Walmart, Goldman Sachs, and JPMorgan Chase delivering solid performances. This has provided a fundamental base for index gains. The tech and artificial intelligence theme's comeback is setting the tone for the market after months focused on international trade.

Euphoria has particularly focused on some mid-cap tech stocks, such as Microchip Technology and Seagate Technology, which have doubled in the stock market since April 8. This appetite for growth stocks signals a return of risk appetite, boosted by short-term macroeconomic outlooks deemed more favorable. Consequently, several major investment banks have raised their targets for the S&P 500 this year. For example, Brian Belski of BMO recently raised his annual target for the index to 6,700 points, up from 6,100 previously.

However, this bullish momentum does not erase all warning signs. The U.S. economy shows several signs of slowdown, including a decline in industrial production, a fall in retail sales, and slowing job creation. Added to that is a drop in manufacturing activity and imports falling to their lowest level in 16 years. Some strategists warn of a summer risk combining price pressures and weak growth. In this context, current valuations, already high, could lack support if the economic environment hardens.