U.S. stocks rebounded strongly on Monday after the sharp selloff following President Donald Trump’s “Liberation Day” tariff announcement, but experts warn that it’s not yet “back to square one” for the market, according to Capital Economics analysts.
The major indexes advanced, with the S&P 500 and Nasdaq Composite both gaining 0.5%, each reaching fresh record highs. The Dow Jones Industrial Average climbed 0.6%.
Investor confidence was lifted by signs that trade tensions are easing and expectations that the Federal Reserve will soon cut interest rates.
This marks a continuation of the recovery following the market plunge in early April, triggered by Trump’s sweeping new tariffs targeting multiple countries.
However, Capital Economics’ team, led by Hubert de Barochez, cautioned in a client note that despite the rebound, the U.S. stock market is still trailing many global peers so far this year.
They pointed out that certain market segments have yet to bounce back. The Russell 2000 index of small-cap stocks remains nearly 15% below its peak, while a tracker of the “Magnificent 7” mega-cap tech stocks sits about 3% below its December high.
Although earnings have surpassed pre-April levels, valuations haven’t fully recovered, with forward-looking price-to-earnings ratios and per-share income still below recent highs.
“This suggests investors are more cautious than they were earlier this year,” the analysts wrote. “We agree that some caution is warranted.”
They added they feel “less optimistic” than before about the market’s pace, noting that uncertainty surrounding Trump’s unpredictable policy moves will likely “prevent the S&P 500 from rising as quickly as it has recently.”