Indeed, in a classic relief rally fashion, Monday saw a rebound in the S&P 500, snapping a six-day losing streak. Yet, investors remain highly cautious on both the earnings and policy fronts. The nature of the soft rebound, whether it's a dead cat bounce, a short-covering rally, or the beginning of a more promising trend, hinges largely on how investors interpret the earnings landscape and in which direction US economic data unfolds in the coming days.
However, when market sentiment shifted to anticipate fewer than two quarter-point cuts, this foundational aspect of the optimistic outlook began to falter. The evolving narrative among traders is increasingly centred on the potential for a policy misstep. Firstly, the impact of aggressive fiscal stimulus last year cannot be overstated, with nominal GDP growth hitting approximately 8% in Q3 and around 6% for the entire year.