Many investors are breathing a sigh of relief that stocks seem to be making a comeback. Ned Davis Research says: not so fast. President Donald Trump’s trade policies wreaked havoc on markets to start the year, dragging down the S & P 500 18.9% between its all-time high in February and its closing low in early April. But stocks have made a spectacular recovery since the White House in early April suspended for 90 days its “retaliatory” tariff policies. The S & P 500 has soared nearly 19% since its April 8 low, and is finally positive on the year again, last trading 0.6% higher. The Dow Jones Industrial Average and Nasdaq Composite are now respectively 1.1% and 0.5% lower on the year. But although this upward bounce is welcome, Tim Hayes, chief global investment strategist at Ned Davis Research, says investors who are getting their hopes up may be getting ahead of themselves. In a Thursday note, Hayes said he recently shifted 5% of a model portfolio allocation from bonds to equities, leaving him marketweight on stocks, at 55%. Going forward, he is watching for data that would support adding or lowering exposure to stocks and, until then, is staying neutral until the full impact of tariffs materializes. “The market has recovered with indicator improvement. But this doesn’t mean that there has been a significant increase in clarity about the months ahead,” he wrote. “When the tariffs hit, to what extent will we see uptrends in prices, inflation expectations and bond yields, with U.S. Treasury yields potentially driven higher by mounting deficit concerns?” Against such uncertainty, Hayes suggested a neutral approach makes the most sense, which calls for an allocation of 55% stocks, 43% bonds and 2% in cash. “The bottom line is that the messages are mixed, warranting a neutral stance and marketweight allocation. In the months ahead, the tariff impact should become more clear,” the strategist continued. “And the indicator developments will help us decide whether to 1) continue increasing exposure on evidence of a reassertive global bull market, 2) remain marketweight in a range-bound market, or 3) decrease it again in response to indications that what we’ve seen is a rally within a global bear market.”
