S&P 500’s relief rally likely to stall

THE S&P 500 rebounded over 14 per cent from a swing low of 4,835, recorded on Apr 7, 2025, after a period of panic selling triggered by aggressive reciprocal tariff proposals from the US towards its trading partners. Several factors have contributed to the current relief rally for the index.

Firstly, the Trump administration stepped back from its initial aggressive stance with the announcement of a 90-day pause on reciprocal tariffs for America’s trading partners excluding China. This news sparked a 9.5 per cent surge in the S&P 500 on Apr 9. US President Donald Trump also signalled a softer stance towards China, stating he is open to talks with China President Xi Jinping and that his proposed 145 per cent tariff rate on goods from China would be reduced “substantially”. China has also exempted some US imports from its tariffs, fuelling hopes that trade tensions between the world’s largest economies could ease, which has supported the recovery in equities.

Secondly, Trump recently reduced pressure on Federal Reserve chair Jerome Powell, saying he had no plans to fire him. Earlier on, Trump had called Powell a “major loser” and “Mr Too Late” for not cutting interest rates sooner. The market reacted negatively with a weakening of the US dollar as such actions threaten the perceived independence of the central bank, which is a cornerstone of financial stability and investor confidence. If the Fed is seen as being subjected to political pressure, investors worry that monetary policy decisions such as setting interest rates could be made for short-term political gains rather than long-term economic health, increasing the risk of uncontrolled inflation.

Thirdly, the market expressed renewed optimism following claims of progress by the Trump administration on trade talks with other countries.

However, from a technical perspective, investors should exercise caution as the current relief rally could stall above the 5,700 level. The S&P 500 has been trading consistently below the 200-day simple moving average (SMA) since Mar 10, with the index also finding resistance from this previous support at the end of March. The 200-day SMA is widely regarded by traders as a key indicator of the long-term market trend.

Additionally, the S&P 500 also formed a death cross signal on Apr 14, the first in over three years since Mar 14, 2022. A death cross happens when the 50-day SMA (intermediate-term trend) crosses below the 200-day SMA (long-term trend), often interpreted as a signal that a correction could worsen into a prolonged downtrend. In addition, the 100 per cent Fibonacci extension level using the swing low at 4,835 points and higher low at 5,100 points projects a likely resistance at 5,747 points. This is confluent with the swing high resistance formed at the end of March and the current 200-day SMA.

In conclusion, the current relief rally for the S&P 500 is the result of a confluence of factors, including the Trump administration implementing a 90-day pause on reciprocal tariffs and a softer stance towards China, reduced pressure on Fed chair Powell, as well as renewed optimism over ongoing trade talks. Despite the current positives, we are likely to see the current rebound for the S&P 500 facing resistance above 5,700 as several significant headwinds persist from the ongoing trade war, where concrete outcomes remain limited and fears of a recession from the economic disruption remain elevated.

The writer is research analyst at Phillip Securities Research