Dow, S&P 500, Nasdaq slip as emerging doubts threaten Wall Street’s rally

After a massive drawdown in the initial reaction to President Trump’s April 2 tariffs, major stock indexes have roared back.

But following six straight days of gains that have brought the S&P 500 within 3% of a new all-time high, some on Wall Street are cautioning that the next move in markets might not be definitively higher.

“I do think there is some complacency [in markets],” Charles Schwab chief investment strategist Liz Ann Sonders told Yahoo Finance.

Sonders pointed out that at the bottom of the drawdown, investor sentiment hit historically low levels. Since then, market sentiment has taken a U-turn, and a large tech rally, including in some more speculative names, has helped lead the market’s return.

“We may be at that point where the setup, from a sentiment perspective, suggests that the market could have some downside if we get a negative catalyst,” Sonders said. “And that’s really the best way to think about this market. It’s hard to judge it based on what policy announcements are going to be and when they’re going to come. That’s a fool’s errand.”

Trump’s tariff walkback has been at the forefront of the recent surge in stocks. Last week, the 90-day tariff pause between the US and China prompted several Wall Street strategists to boost their year-end targets for the S&P 500 in 2025 while economists scaled back their probabilities of a recession for the US economy.

Still, consumer sentiment surveys remain at their lowest levels on record, and fears that tariffs could boost inflation and slow economic growth haven’t fully left the picture.

“Equity markets have reacted with unwarranted optimism, overlooking the persistent economic drag posed by elevated tariffs,” EY chief economist Gregory Daco wrote in a note to clients.

Daco lowered his odds of a US recession in the next 12 months to 35% from a prior projection of 45% prior to the delay of tariffs on China. Still, he sees US economic growth approaching “stall speed” by the fourth quarter, with GDP rising just 0.6% compared to the year prior in the final three months of 2025.

“While the near-term outlook is more constructive, risks remain tilted to the downside,” Daco said.