S&P 500 Ends Nine-Day Rally Ahead of Crucial Fed Meeting Amid Trade Tensions

The S&P 500 snapped its longest winning streak in two decades on May 6, 2025, as investors digested mixed signals ahead of the Federal Reserve’s policy meeting and simmering U.S.-China trade tensions. The index’s decline of 0.7% in early trading marked the end of a nine-day rally that had pushed it to near its 200-day moving average—a critical technical hurdle. This abrupt shift underscores the delicate balance between optimism over corporate earnings and lingering macroeconomic uncertainties.

The Rally’s End and Its Causes

The S&P 500’s streak—its longest since November 2004—had been fueled by a rebound in corporate earnings and hopes of easing trade tensions following incremental progress in U.S.-China negotiations. By May 5, the index had recouped all losses incurred after President Trump’s April 2 tariff hike, rising to a closing high of 5,650.38. However, the optimism unraveled on May 6 as investors grew cautious ahead of the Federal Open Market Committee (FOMC) meeting, scheduled for May 6–7.

The Fed’s stance was pivotal. While markets had priced in a 90% probability of the central bank holding rates steady at 4.25%–4.50%, traders remained wary of policy ambiguity. Chair Jerome Powell’s press conference on May 7 was expected to clarify whether the Fed would delay further rate cuts—a key driver of equities—amid signs of persistent inflation.

Market Dynamics and Sector Performance

The sell-off was uneven across sectors. Energy stocks, including Coterra Energy (CTRA), dipped as crude oil prices fell to $57.40 per barrel, reflecting supply gluts. Meanwhile, defensive sectors like healthcare (e.g., LifeMD (LFMD)) and consumer staples held up, buoyed by strong Q1 earnings reports.

Corporate earnings season also took center stage. Over 20 companies, including Gartner (IT) and Arista Networks (ANET), reported results on May 6, with many beating lowered expectations. However, analysts noted that 2025 earnings estimates had been revised downward for a third consecutive month, signaling caution about a slowing economy.

Fed Policy and the Road Ahead

The FOMC meeting’s outcome will shape the market’s trajectory. While the central bank was not expected to alter rates, its economic projections—including updated inflation and growth forecasts—could influence investor sentiment. A dovish tilt, such as a hint of rate cuts by mid-2025, might rekindle the rally. Conversely, a hawkish stance could trigger a deeper correction.

Technical analysts highlighted the 200-day moving average (~5,783) as a key hurdle. Breaking above it would validate the bull case, while a sustained drop below 5,600 could signal renewed weakness.

Trade Tensions and Geopolitical Risks

The trade backdrop added to volatility. While U.S. and Chinese negotiators had made incremental progress on semiconductor rules, no breakthrough was imminent. Investors remained wary of further tariff escalations, which could dampen corporate profits and global growth.

In commodities, gold’s surge to $3,320 per ounce—a haven bid—reflected heightened uncertainty, while the 10-year Treasury yield fell to 4.35%, signaling a flight to safety.

Conclusion: A Delicate Balance

The S&P 500’s abrupt reversal on May 6 illustrates the market’s precarious position: optimism over corporate resilience collides with macroeconomic headwinds. While earnings have provided a floor, the Fed’s policy path and trade developments remain critical.

Key Data Points to Watch:
- Fed policy decision (May 7): A hold on rates with a dovish tilt could lift equities.
- S&P 500’s 200-day moving average (5,783): A breakout could signal a resumption of the rally.
- Earnings revisions: If Q2 estimates stabilize, the index might reclaim momentum.

For now, investors are caught between hope and hesitation—a theme likely to persist until the Fed and trade risks clarify.

In this environment, a selective approach to sectors with strong fundamentals (e.g., healthcare, technology leaders) and a watchful eye on macro indicators will be key to navigating the volatility. The next few days will test whether the market’s optimism can endure beyond the Fed’s decision.