The S&P 500 reached its peak on February 19 and has since struggled to reclaim the 5,800 level, a support that had held for four months. Despite persistent pressure from US trade disputes with Canada and Mexico, as well as the imposition of new tariffs affecting nearly every major economic region, equities have demonstrated notable resilience.
According to a recent report by Chinese state media, the United States has quietly initiated trade negotiations with China. While China officially maintains a 125% retaliatory tariff on US imports, it has granted waivers for sectors such as ethane, semiconductors, and certain pharmaceuticals. In return, the United States has partially exempted automakers from new tariffs. These actions suggest that both sides are gradually making concessions.
There is a reasonable possibility that the S&P 500 established a bottom at 4,835 on April 7, with further gains from the current 5,635 level remaining plausible. The stock market has responded positively to robust first-quarter earnings, as companies adapt to tariffs by relocating production outside China or expanding operations within the United States.
For instance, Microsoft reported a 13.2% year-over-year increase in revenue, driven by higher margins and strong demand for artificial intelligence. Similarly, Meta exceeded earnings and revenue expectations on April 30. These results have alleviated concerns about a potential AI bubble or the risk that the trade war could force companies to reduce investment.
Rather than focusing on the recent decline in US PMI manufacturing data—which reached a five-month low in April—market participants are closely monitoring the Federal Reserve’s next policy moves. Following a year of balance sheet reduction, the Fed is now considering asset purchases to help ease selling pressure.
An increase in liquidity is typically favorable for risk-oriented assets. Therefore, even if a full decoupling does not occur, cryptocurrencies could still benefit from a more supportive macroeconomic environment.
Despite the short-term correlation, the cryptocurrency market has outperformed equities in recent months. Since March, the total crypto market capitalization has risen by 8.5%, while the S&P 500 has declined by 5.3%. Over a six-month period, this divergence becomes even more pronounced: the total crypto market cap is up 29%, while the S&P 500 is down 2%. It is therefore inaccurate to suggest that these markets move in perfect synchrony, particularly when viewed over longer timeframes.
It is still premature to declare a definitive bottom for the S&P 500 or to conclude that the trade war has been resolved. An economic recession would likely have negative implications for both markets. However, the current strength in equities indicates reduced risk aversion among investors. For the time being, the elevated correlation between cryptocurrencies and stocks may represent the most favorable scenario.
