The US stock market has been melting up, printing over a 20% gain within just the last 6 weeks.
This officially makes it the most powerful rally since 2020.
Zooming all the way out to the 1960s, we’ve seen this type of powerful rally only occur a handful of times throughout history.
Typically, it has marked major bottoms in stocks, followed by very strong multi-year market rallies.
Despite this impressive performance, a record 48% of US consumers believe the stock market will be heading lower over the next 6 months.
These concerns stem from multiple sources:
- Fears of a possible recession
- Inflation risks from tariffs
- Risk of a government debt crisis
- Possibility of the US dollar collapsing
Yet despite all these worries, the stock market has continued to thrive.
Let’s examine exactly why stocks are performing so well right now and evaluate whether we can expect this strong performance to continue.
Cooling Trade War Uncertainty
The level of uncertainty around US trade policy had reached record levels just weeks ago, driving the decline in the stock market.
This was one of the key reasons we actually stayed quite constructive during the market correction.
As uncertainty declines, you get the mirror image of what happened when uncertainty rose.
With markets now seeing trade negotiations moving in the right direction, it explains why the stock market has risen so aggressively.
The market is actually back above where it was on April 2nd when Donald Trump’s tariffs were announced.
This suggests nearly all uncertainty around tariffs has cleared up, which likely means the pace of this rally will at least slow down from here.
In fact, we believe the stock market is a bit overextended and could be due for a short-term pullback.
Corporate America Is Thriving
Any additional upside in the stock market from here needs to result from more durable fundamental forces.
That leads us to the 2nd big factor:
Corporate America’s remarkable performance.
The earnings of the largest 8 companies in the S&P 500 have been rising rapidly.
In 2025 alone, these companies have managed to grow their earnings per share significantly, despite the 20% market decline due to trade uncertainty.
Keep in mind that the earnings of just these companies make up 25% of the entire S&P 500 index, giving them significant influence on the overall market.
We’ve been long on Meta at Bravos Research and are up over 12% on this trade alone, as the stock catches up to the reality of its earnings.
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The question is whether these earnings can continue to grow over the coming year.
We believe that’s plausible, as highlighted in our recent analysis of the semiconductor sector found here.
Recession Odds Are Declining
The 3rd major factor driving the market is the decreasing probability of a recession.
Betting markets following the Liberation Day announcement on April 2nd put the odds of a US recession in 2025 at almost 70%.
Today, those odds have come back down below 40%.
No recession has been triggered yet, which means the economy should continue to grow.
This is something many people don’t understand about financial markets and the economy.
Over the long run, the S&P 500 goes up because most of the time the economy is steadily growing, which means our bias on the stock market should be to the upside.
The Divergence Within the Market
It’s important to note that the performance of Corporate America has nothing to do with the real economy.
Consumer-related stocks have underperformed the S&P 500 by over 23% since 2021.
Small capitalization companies have underperformed by 33%.
This represents the real economy, which has not been thriving.
Meanwhile, the technology sector has outperformed by 13% over the same period, and the semiconductor sector has outperformed by a remarkable 37%.
These stocks have once again been leading the market higher during this recent upswing.
This divergence could very well continue over the next few months and years, which would be constructive for the market.
Does this mean we should go all-in on the S&P 500 right now?
The answer is more nuanced.
One of our core principles at Bravos Research is that we invest when volatility is high and we trade when volatility is low.
The VIX (volatility index) recently spiked to its highest level since 2020 and before that, the great financial crisis.
These are moments when we should be investing for the long run.
In early April, we told our members that it was an ideal time to put capital to work for the long term.
However, high volatility environments (VIX above 30) are extremely dangerous for trading because wild swings can whipsaw you in and out of positions.
Our ideal trading environment is when the VIX is below 20, when the market moves are steadier and you’re less likely to get whipsawed.
We’ve quickly transitioned from an environment where we should invest to one where we’ll be initiating more trades.
We’ve already had very successful double digit trades on NRG, Meta, Costco, ADMA, SFM, and many others during this correction.
As we move into a lower volatility environment, we expect to initiate significantly more trades, capitalizing on the market’s continued strength while managing the risks that remain.
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