The ETF Portfolio Strategist: 02 MAY 2025

US Stock Market Trend Watch

US equities have rebounded since the April 7 low, based on daily closes for the S&P 500, but it’s not yet clear that the negative shift in sentiment has run its course. In the parlance of Wall Street, the burning question comes down to: Is this a bear-market rally, or is the market indicating that the worst has passed and we’re again looking at a period of stability that lays the foundation for a new bull run at some point?

A key variable (perhaps the only variable the market cares about at this point) is the path ahead for US tariff policy. Alas, clarity will not be forthcoming, at least for the foreseeable future, given the opaque and mercurial policy playbook favored by the White House.

Where does that leave us vis-a-vis the stock market outlook? For some perspective, here’s a quick look at some of the proprietary indicators I watch for tracking the US stock market for art/science of estimating if a trend shift is brewing. The logic here is that no one indicator will suffice for profiling the market, and so reviewing conditions from several technical dimensions helps to cut through some of the noise. The main takeaway: a cautious outlook still looks reasonable.

Let’s start with the trio of Trend Risk Signals (TRS) that are regularly featured in our weekly updates for global asset allocation strategies (the Apr. 27 update, for instance). TRS is formatted to model 3 time horizons: short, medium and long. Running the analytics on the S&P 500 Index shows that the short-term risk-off warning triggered on Feb. 26 remains in effect (through yesterday’s May 1 close). This is a relatively noisy indicator, given its short horizon, and so a new risk-on signal will, at some point, show up here first.

The medium-term TRS also remains in a risk-off stance. When the short-term TRS flips back to a bullish position, a follow-up change in the medium-term TRS would be a confirming switch that the trend bias has switched.

Note that long-term TRS has remained risk-on, which provides some basis for arguing that the recent correction has been noise for investors with relatively lengthy time horizons. If long-term TRS switches to risk-off at some point, and the switch is confirmed by ongoing risk-off signals for short- and medium-term TRS data, the outlook would darken beyond what we’ve seen so far. In other words, the correction to date has been relatively steep, but the long-term TRS is still advising that the slide has not yet deteriorated to the point that signals a long, grueling downturn.

For another perspective on how the current correction stacks up, consider the S&P 500 Sentiment Momentum Index (SMI), which I discuss periodically at CapitalSpectator.com. SMI’s current reading suggests the market’s still oversold on a tactical basis, which implies that there’s still more upside ahead on a short-term basis.

Finally, the chart below tracks the US Stock Market Trend Strength Indicator (TSI). The methodology is crunching data on a range of equity sectors, factors and market-segment ratios for a deeper and broader read on S&P trend behavior, based on various ETFs. In contrast with the TRS design discussed above, TSI is a slower-moving tracker, but arguably more robust because it’s looking at a wider array of market signals and components, such as the performance ratio of consumer cyclical vs. consumer durables stocks and the relative strength of the broad equities market vs. defensive sectors such as utilities.

Note that TSI started picking up on a modest pullback in animal spirits a year ago, but it turned out to be mostly noise. But in early March of this year, TSI started rising persistently, warning of more substantial downturn. TSI went full risk-off on Apr. 11.

When TSI starts to retreat, that will be an encouraging sign. For the moment, however, this indicator is emphatic in telling us that it’s still premature to assume that the potential for downside risk has subsided in a meaningful degree. ■