In the wake of President Donald Trump’s “Liberation Day,” a Wall Street strategist remained unfazed. The stock market had just undergone its most significant two-day sell-off since March 2020, when the world was grappling with the onset of the COVID-19 pandemic. With the S&P 500 dropping over 10% within just two trading days, Wall Street was awash with dire predictions. Various strategists from different financial institutions cautioned of a looming recession and anticipated lower stock returns as a consequence of Trump’s aggressive tariffs.
However, Craig Johnson, the chief market technician at Piper Sandler, took this moment to reaffirm his optimistic outlook, suggesting that the S&P 500 could close the year at a new peak of 6,600—a potential upside of 22% from Friday’s closing levels. His note to clients, titled “Don’t Stop Believin,” highlighted his unwavering bullish stance despite the high market volatility triggered by Trump’s trade policies.
It’s Only April
Johnson emphasized that “it’s only April,” indicating there’s ample time for the stock market to absorb recent downturns, stabilize, and subsequently rally. “Let’s give this market a little bit of time,” he commented. “There’s a lot of volatility, and if we start to see a more rational trading environment take shape, then market multiples could improve, and expectations of earnings cuts might not be as severe as some anticipate.”
His optimistic perspective, which assumes a reversal in some of Trump’s tariff policies, seemed vindicated on Wednesday when Trump announced a 90-day suspension of “reciprocal” tariffs for many countries. Following this news, the stock market surged nearly 10%. “We just had one of the best days in the market since World War II, and I don’t think anyone anticipated such a massive shift,” Johnson noted. “Ultimately, I believe there is even more potential for the market to trend upward.”
Investors Are Too Negative
The recent plunge in investor sentiment adds to Johnson’s conviction that a market rebound is imminent. The CNN Fear & Greed Index recently dipped to 4, the second-lowest reading in history, surpassed only by two instances during March 2020. Another measure, the AAII Investor Sentiment Survey, has revealed unprecedented levels of bearish sentiment, comparable only to those during the 2008 financial crisis. “Negativity is running rampant,” Johnson remarked, noting that recent trends show investors moving away from stocks into money market funds. He posits that such extreme negativity often acts as a contrarian signal, indicating that stocks could be on the verge of a rally. “If you become emotional in the market, you will inevitably lose,” Johnson stated. “You must stick around when sentiment is low and seize the opportunity to acquire stocks.”
The Technical Setup
From a technical analysis standpoint, Johnson identified several encouraging signs, even amidst the tumult caused by trade issues. For instance, the S&P 500 dipped to 4,835 in pre-market trading this week. This drop was significant as it tested previous resistance turned support, a key principle in technical analysis. The S&P 500 had peaked at 4,818 in January 2022, and the memory of that price level inspired buyers to jump back into the market. “It was a solid area of support,” Johnson added. “I don’t think I could have asked for a more perfect scenario based on sentiment, our indicators, and support levels; it was almost spot on.”
He also pointed out that the stock market had signaled extreme oversold conditions, which typically heralds a strong recovery. Among the stocks Johnson tracks, only 5% were trading above their 40-week moving average. “Numbers this low are quite rare,” he said. A rebound in this figure would be a positive indicator, suggesting that the market is moving away from deeply oversold territory.
In summary, Johnson anticipates that the S&P 500 will encounter resistance at 5,500 and, if it succeeds in breaking through that level, it may trade sideways between 5,500 and 5,800. “We might see some choppy trading until investors gain better insights into trade dynamics,” he explained. Clarity in trade policies and potential agreements could reduce uncertainty and propel the stock market to record highs by year-end. “I keep saying don’t stop believing because when markets get beaten down, they often appear washed out,” he concluded. “Coming to these levels is precisely the time to buy stocks.”
