After rallying 14% since April 8, the S&P 500’s recovery may be losing momentum as renewed tariff pressures threaten profit margins and earnings growth, according to a fresh BCA Research note.
What Drove the Recent Rally
Bear-Market Bounce: Falling volatility, deeply negative sentiment, and oversold conditions set the stage for a sharp snapback.
Trade Optimism & Data: Hints of easing U.S.–China tensions, combined with solid economic releases, prompted a rotation from defensives/value into cyclicals and growth.
Mag 7 Leadership: Big Tech names outpaced the broader market, fueling much of the index’s advance.
Why BCA Thinks the Upside Is Limited
Rich Valuations: The index now trades at roughly 20× forward earnings, leaving little room for error if margins compress.
Earnings Downgrades: While Q1 beats were modestly above forecasts, Q2 profit estimates—especially for cyclical sectors—have been sharply cut.
Tariff Impact on Margins: BCA projects that higher levies will shave off 2 percentage points from the S&P 500’s net margin, with consumer discretionary firms among the hardest hit.
To see the latest forward multiple on U.S. equities, investors can tap the Sector P/E Ratio API, which tracks current and historical P/E ratios across major sectors—essential for gauging whether 20× remains sustainable.
What to Watch Next
New Tariff Announcements: Any reversal of the recent 90-day pause or fresh levies could trigger renewed sell-offs.
Q2 Earnings Calendar: Monitor upcoming reports—particularly from industrials and consumer discretionary—to assess how much margins are really under siege.
Economic Data Trends: Keep an eye on PMI, retail sales and corporate guidance for early signs that cost pressures are denting demand.
Bottom Line
BCA’s analysis suggests that the S&P 500’s durable bounce may be a bear-market rally, not a return to cyclical highs. With valuations at peak levels and tariffs poised to erode profitability, odds appear skewed toward further downside unless trade risks abate and corporate earnings regain upward momentum.
