US stocks: 5 signs the tariff sell-off is over

The US stock market is flashing a series of key technical signals, suggesting that the tariff-driven sell-off that began earlier this month may have bottomed out.

5 signs the US stock market's tariff-fueled sell-off may be over

Despite a slight correction Friday morning, the market has enjoyed three straight sessions of strong gains, with the S&P 500 up 13% since the Trump administration announced a 90-day pause on most tariffs.

The rally was swift and strong, with a 10% gain occurring in just one trading session.

Investors are currently torn between two possibilities: is this just a recovery in a deeper downtrend, or is it the beginning of a real recovery cycle, strong enough to bring the market back to historical highs and reaffirm the bull market trend.

Many experts believe the recovery scenario is dominant.

“The past week has seen several key developments that increase the probability to over 90% that the market has bottomed,” Fundstrat analyst Tom Lee said in a note released Friday, adding: “In other words, the bull market is not over yet.”

Here are five positive signs that have emerged.

Zweig Breadth Thrust indicator gives signal

This extremely rare technical indicator flashed a signal on Thursday, implying that the market is likely to rally sharply in the coming period.

The Zweig Breadth Thrust measures the extent to which stocks are participating in a general market rally. Since 1945, the indicator has only triggered a signal 18 times, most recently in November 2023.

According to Ryan Detrick, all 18 occurrences of this signal resulted in positive returns for the S&P 500 after 6 and 12 months, of 15.3% and 24.0%, respectively.

Market volatility has declined sharply.

In the past two weeks, the Cboe Volatility Index (VIX) has fallen sharply enough to signal a “bear killer.”

This signal occurs when the VIX previously crossed 50 but then fell below 30. This happened just last week. And historically, this is often a sign that the market has found a bottom.

When this signal appears, the market returns in the following period are usually very positive: the median 3-month return is 2.8%, 6-month return is 11.0%, and 12-month return is 17.9%. Notably, the probability of a positive return after 12 months is 100%, said Jason Goepfert of SentimenTrader.

“Death cross” signal amid strong sell-off

Although a “death cross” (the 50-day moving average crossing below the 200-day average) is generally viewed as a negative signal, in some contexts it is a sign that the bottom has been reached.

According to LPL Financial expert Adam Turnquist, death cross signals that appear within a month of a sharp market decline typically result in positive returns.

The most recent death cross occurred on April 14, less than a month after the S&P 500 fell 19%. According to Turnquist, similar events in the past, with declines of more than 15%, have resulted in an average 12-month return of 16%, with a success rate of up to 83%.

“When the death cross is accompanied by a deep decline, most of the damage is already reflected in the price and the chance of a recovery is significant,” he said.

Bond yield spreads (junk bonds) narrow

After spiking on tariff concerns earlier this month, the spread on junk bonds — the risk premium over government bonds — is trending narrow.

BofA’s option-adjusted spread on U.S. junk bonds fell to 3.75% this week from 4.61% on April 7, a 50% rebound from its recent peak in late March.

According to Tom Lee, this improvement shows that recession fears are gradually easing.

“This confirms that the recession risk is narrowing,” he said.

Two consecutive sessions achieved a rate of over 90% of stocks increasing

On April 22, the market recorded two consecutive sessions with over 90% of stocks increasing in price, a sign that the breadth of the increase is very strong.

According to Tom Lee, this signal is highly reliable in confirming that the market has bottomed.

The three previous times this signal appeared were in March 2009, August 2011 and April 2020, all coinciding with the end of deep market declines.

Source: https://thoibaonganhang.vn/chung-khoan-my-5-tin-hieu-cho-thay-dot-ban-thao-do-thue-quan-da-ket-thuc-163400.html