Despite a sharp rebound in U.S. equities following April’s steep sell-off, market strategists caution that the recent rally may be on fragile footing.
The S&P 500 has retraced 11% from its April 8 low—recovering more than half of its prior losses—but Wall Street professionals warn that the path ahead is riddled with technical, economic, and policy-driven headwinds. For wealth advisors, it’s a critical time to help clients manage expectations and reassess risk positioning.
Below are three key reasons institutional analysts believe equities could face renewed pressure in the months ahead:
1. Technical Resistance Points to a Bear Market Rally
From a technical perspective, multiple indicators suggest the S&P 500’s recent gains may not signal a durable turnaround. The index is currently approaching two critical resistance levels: its 50-day and 200-day moving averages. Historically, when equities approach these levels during a broader downtrend, price action tends to falter rather than break out. The moving averages themselves have been declining, a pattern typically viewed as confirmation that sellers retain control over market direction.
Jeff deGraaf, Head of Technical Research at Renaissance Macro, believes the market’s recovery to this point is consistent with typical bear market behavior. “Markets have clawed back over 50% of the peak-to-trough decline,” he told CNBC, referencing the move off April lows. “That’s the kind of level where resistance often emerges.” He added that a number of short-term technical indicators are flashing overbought conditions.
DeGraaf sees the current rally as a temporary bounce rather than a new bullish trend. “This looks like a bear market rally. We might push another 3% to 4% higher from here, but I think the next phase brings more challenges,” he said. “All of our trend models have shifted back into bearish territory.”
For advisors, this is a reminder that recency bias and headline-driven optimism can mask underlying weakness. A disciplined reallocation strategy remains essential for clients with short- to medium-term liquidity needs or risk constraints.
2. Heightened Recession Risk Could Cap Equity Upside
While recent economic data has been mixed, Goldman Sachs and other leading forecasters have increased their recession probabilities for the next 12 months—posing another threat to equity markets. The U.S. economy contracted by 0.3% in Q1, marking the first negative print since 2022. According to Goldman, the drag from tariffs is unlikely to abate until Q3, suggesting economic softness may persist through the summer.
When the market bottomed in early April, the S&P 500 was down 19% from its February peak. Yet Goldman points out that this drawdown would be relatively mild in a true recessionary environment, where equity markets typically fall further. The implication: if the U.S. economy tips into a formal recession, the stock market may not yet reflect the full extent of downside risk.
Goldman now assigns a 45% probability to a U.S. recession over the next year. JPMorgan and other major firms have also revised their recession odds higher, largely due to policy friction and weakening global demand. In a Tuesday research note, Goldman analysts wrote, “Even if the worst of the policy shock has passed, there is still significant vulnerability in a recession scenario.”
Advisors should note the disconnect between short-term relief rallies and longer-term economic signals. In portfolios where clients have overconcentrated exposure to cyclical equities or small caps, this could be an opportune moment to revisit diversification strategies and defensiveness.
3. Trade Policy and Tariff Uncertainty Remain a Key Overhang
Perhaps the most immediate risk remains unresolved trade tensions. President Trump’s April tariffs, although delayed in implementation, have not been rescinded—and recent comments suggest his administration remains committed to a confrontational stance with China. “They’ve been ripping us off like nobody’s ever ripped us off,” Trump said in a televised interview this week, reaffirming his hardline rhetoric.
For investors, the lack of clarity on tariffs continues to inject volatility into risk assets. Chris Toomey, Managing Director at Morgan Stanley’s Private Wealth division, warned that the market remains range-bound as long as trade policy remains in flux. “We’re probably at the top of that range now,” Toomey told CNBC. “From our standpoint, this isn’t a buying opportunity—we’d prefer to accumulate on weakness.”
Toomey said his team is waiting for more concrete developments on multiple fronts before becoming constructive on equities. Specifically, they are monitoring: (1) a firm resolution on China tariffs, (2) a more dovish stance from the Federal Reserve, including a 10-year Treasury yield moving below 4% without triggering recession fears, and (3) sustained strength in corporate earnings.
“Until we get real clarity on those issues, we’re not ready to get bullish,” he said.
Wells Fargo’s Senior Global Market Strategist, Scott Wren, echoed similar sentiments in a Wednesday note, stating, “We wouldn’t be surprised to see the index retest its lows as uncertainties mount.” He cited ongoing geopolitical maneuvering and inconsistent signals from policymakers as factors that “only leave investors with more questions than answers.”
For advisors, the broader message is clear: headline-driven rallies are not synonymous with durable bull markets. As international negotiations and domestic policy decisions unfold, investors are likely to experience further volatility—and asset allocation strategies should reflect that.
Implications for Portfolio Construction
Taken together, the technical ceiling on the S&P 500, rising recession risks, and unresolved policy issues suggest a cautious stance is warranted, particularly for clients nearing retirement, those with near-term distribution needs, or portfolios overly concentrated in high-beta assets.
This environment calls for an emphasis on quality—focusing on balance sheet strength, dividend sustainability, and earnings visibility. A modest tilt toward sectors that historically outperform in late-cycle or recessionary phases (e.g., utilities, healthcare, and staples) may help preserve capital. Meanwhile, fixed income remains an important ballast, especially as yields adjust to new macro forecasts.
Advisors should also consider incorporating structured notes, downside-buffered ETFs, or options-based strategies to help clients maintain market participation while reducing the psychological toll of volatility. Liquidity management remains essential, as does regular communication—clients benefit most when advisors contextualize noise, reinforce plan discipline, and revalidate risk tolerances.
Ultimately, the recent rally may represent more of a reprieve than a reversal. Advisors and RIAs who remain alert to macro crosscurrents, technical signals, and evolving client needs will be best positioned to navigate what could be another volatile summer for markets.
