Stocks faced pressure on Tuesday but stayed close to all-time highs after a strong rebound from April lows. Despite recent gains, investors remain cautious. Several factors contribute to this uncertainty, including President Trump’s tariffs, their inflationary effects, the Federal Reserve’s unclear plans for rate cuts, and renewed geopolitical tensions in the Middle East.
Consumer Confidence Improves, But Investors Stay Guarded
Consumer confidence has started to recover from its lows earlier this year. However, data from market research firms such as SentimenTrader, Ned Davis Research, and Vanda — cited by Charles Schwab — show that equity exposure is still below historical averages. Mutual funds, hedge funds, and retail investors are gradually rebuilding their risk positions but remain conservative.
This cautious mood was also clear in Bank of America’s latest global fund manager survey, published Tuesday. The survey revealed a sharp drop in risk appetite. A net 28% of investors reported maintaining more cautious portfolio risk levels than usual. Equity allocations remain about one standard deviation below their long-term averages.
Caution May Support Future Gains
Some strategists believe this caution could actually help stocks rather than hinder them. Kevin Gordon, senior investment strategist at Charles Schwab, told Yahoo Finance that even if stocks reach new highs, negative sentiment could persist.
He described the recent rally as “definitely still unwelcome” but said this reaction is common after a sudden sharp sell-off.
Tom Lee, head of research at Fundstrat, wrote in a recent note that investors may be missing signs of a stronger investment backdrop than in early 2025. He cited increasing clarity on trade and tax policies and a potentially more dovish Federal Reserve as positive factors.
Lee added, “We are very close to all-time highs, but investors are mostly still bearish. This is still one of the most hated rallies.”
Wall Street Strategists Turn More Bullish
Wall Street analysts have grown more optimistic about stocks in recent weeks. During the April sell-off, at least 11 major firms lowered their forecasts for the S&P 500. Since then, eight of them have raised their year-end 2025 targets.
The current median price target for the S&P 500 stands at 6,100 points, indicating room for further gains.
Sector Performance Indicates Selective Rebound
Kevin Gordon of Charles Schwab noted that gains during the rally have not been evenly spread. Large-cap technology stocks, which led the market for the past two years, have lagged. Instead, sectors such as logistics and aviation have performed well. Meanwhile, more economically sensitive areas like freight and goods production continue to struggle.
Gordon suggested this selective rebound may be a contrarian sign that stocks still have room to rise. He said, “The pain trade could still support stocks to move slightly higher.”
