U.S. stocks surged over the past week, with the S&P 500 higher by nearly 4%. Bulls are cheering three consecutive daily gains, which hasn’t been the case since before the ‘Liberation Day’ tariffs were announced by the Trump administration in early April.

Investors welcomed reports of potential trade deals with India, Japan, and South Korea, easing fears of a prolonged global trade conflict. Trump also hinted at lowering tariffs on Chinese goods, though negotiations remain uncertain. Another major factor was Trump’s declaration that he has "no intention" of firing Powell before his term ends in 2026, which reassured markets. Earlier threats had sparked fears of political interference in central bank independence. Powell’s commitment to finishing his term likely means prolonged legal battles would prevent any premature removal, reducing near-term uncertainty. Hedge funds covering short positions also contributed to the sharp rebound, particularly in beaten-down technology names.

While the market rebound has been dramatic, underlying risks remain. So far, corporate earnings for 1Q have generally been solid, but forward guidance remains cloudy due to trade uncertainty. Analysts have been slow to adjust full-year earnings estimates downward, suggesting potential future cuts.

Companies in the industrial sector continue to show weakness, with the ISM Manufacturing Index indicating contraction since early 2022. Since industries are heavily reliant on capital expenditures, they may face ongoing pressures amid the ongoing trade uncertainty. Many of them have global supply chains, and so what they say about the profit impact of tariffs will be instructive on the actual impact these policies have on the economy.

The market’s trajectory will depend heavily on trade deal progress. Any concrete U.S.-China agreement could extend the rally, but neither side appears ready to commit towards actually backing down soon. Given the current environment, cautious investors may take advantage of selling into short-term relief rallies until a fundamental all-clear signal of tariff de-escalation. The market’s rebound reflects hope that trade tensions ease, hope that the Fed remains independent, and hope that earnings hold up. While the worst of the sell-off may be over, volatility is likely to persist until tariff policies and Fed direction become clearer.

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