Key Points:

1. U.S. President Donald Trump has postponed his plan to impose a 50% tariff on imports from the European Union until July 9, easing

market fears over an immediate escalation in trade tensions.

2. After four consecutive declines, S&P 500 futures jumped 1.5%, breaking decisively above the key technical level of the 200-day

moving average—potentially signaling a bullish reversal.

3. However, should EU trade talks fall apart or the Federal Reserve maintain a hawkish stance at its June meeting, U.S. equities may still

retest the lows.

After posting four straight losses last week, S&P 500 futures opened the new week with a sharp rebound. On Monday, May 26, futures

surged nearly 1.5%, breaking decisively above the key technical level of the 200-day moving average at 5,889.97.

The rally underscored the market’s positive reaction to U.S. President Donald Trump’s decision to delay the planned 50% tariff on European

Union imports until July 9. The move helped ease trade tensions and triggered a key bullish technical formation, boosting short-term

investor sentiment.

S&P 500 Futures - Source: TradingView

Still, gains fueled by policy signals often prove to be short-lived. As the White House’s July 9 deadline approaches, markets may once again

face renewed volatility and downside risk stemming from lingering trade uncertainty.

What Kind of Rebound Is This?

On May 26, U.S. President Donald Trump announced that following a phone call with the European Commission President, he would delay

the planned imposition of steep tariffs on EU products—from the originally scheduled June 1 to July 9. While this move did not produce a

final trade agreement, it was enough to ease investors’ immediate concerns about an escalating trade war, fueling a nearly 1.5% surge in

S&P 500 futures. The rally helped the index reclaim a key technical support level that had been lost amid tariff-related fears.

From a technical perspective, the rebound pushed futures back above the 200-day moving average—an important psychological and

trend-defining level for the market. The S&P 500 had previously hit a short-term peak of 5,963.60 on May 19, but quickly reversed lower

amid renewed tariff concerns and rising Treasury yields, briefly breaking below the critical 5,800 mark. With sentiment now recovering, a

potential double-bottom (W-shaped) pattern may be starting to take shape.

S&P 500 Futures – Source: TradingView

The next resistance for the S&P 500 lies around the 6,000 level—a key psychological threshold. A break above that could open the door for

a move toward the historical highs in the 6,100–6,150 range.

S&P 500 Index – Source: TradingView

Still, history shows that policy-driven relief rallies often trigger a "sell the news" response rather than a sustained trend reversal. Despite the

speed of the rebound, the absence of sustained positive catalysts raises the possibility that this could prove short-lived.

For one, the tariff delay is a constructive signal, but it doesn’t resolve the fundamental trade rift between the U.S. and the EU. If the two sides

fail to reach an agreement on core issues by July 9, the market could again face heightened volatility—or even sharper drawdowns.

Historically, when expectations are priced in and no material progress follows, investors tend to lock in gains.

Importantly, the S&P 500 had already experienced a degree of technical overselling before the tariff shock. The 14-day Relative Strength

Index (RSI) came close to the critical 30 level, indicating oversold conditions. In such a setup, even modest positive news can trigger a sharp

rebound, which may turn into a more sustained rally—particularly if supported by additional bullish catalysts down the line.

S&P 500 Index – Source: TradingView

From a market behavior standpoint, SPY—the S&P 500 ETF—jumped 3.22% on May 26, with turnover surging 552%, suggesting a wave of

short-term capital inflows likely driven by technical trades. Without fundamental follow-through, the sustainability of the rally remains in

question.

Additionally, trading volume around the 5,880 level failed to show a meaningful pickup, indicating a divergence between price and

participation. This kind of price-volume disconnect is often seen as a warning sign.

SPY ETF – Source: TradingView

Overall, the current setup for the S&P 500 remains in a technical “watch zone,” with bulls and bears closely matched. A firm hold above

5,800 and a breakout beyond the prior high of 5,963.60 and the 6,000 level would strengthen the case for a near-term trend reversal.

Otherwise, investors should remain cautious of a potential false breakout followed by a retest of support near the 5,659 area.

S&P 500 Index – Source: TradingView

A Real Market Inflection

To establish a sustained medium- to long-term trend reversal, several key pillars of support are required.

Corporate earnings improvement remains the fundamental driver. In a report published earlier this year, Goldman Sachs indicated that

earnings growth—measured by earnings per share (EPS)—would be the main catalyst for S&P 500 gains in 2025. They project the

S&P 500’s EPS growth rate to reach 11.20% year-over-year in 2025, followed by 7.46% in 2026. This earnings growth provides a solid

foundation for multiple expansion and valuation support.

However, while Q1 earnings season broadly exceeded expectations, a notable number of manufacturing and tech giants have either lowered

or withdrawn forward guidance, highlighting the pressure on profitability from ongoing trade tensions and weakening consumer demand.

A shift in Federal Reserve policy stance is another critical support for a rising equity market. Yet, current signals show the Fed maintaining

a “wait-and-see” and largely passive posture, with no clear indication of easing in the near term.

According to CME FedWatch data, there is a 94.4% probability the Fed will hold rates steady in June, and a 74.9% chance of no change in

July. The market now anticipates the earliest rate cut around September, pricing in only two rate cuts in 2025—a significant pullback from

earlier bets of 75 basis points of easing.

CME FedWatch – Source: CME Group

Previously, Goldman Sachs pushed back its forecast for the Fed’s next rate cut from July to December. Meanwhile, Morgan Stanley projects

zero rate cuts this year, citing inflation pressures. In a May 16 report, the firm warned that U.S. inflation is expected to rise noticeably from

May onward, potentially averaging 3.0% to 3.5% for the year, forcing the Fed to maintain rates throughout 2025.

At the same time, although the Fed began slowing its balance sheet runoff starting April 2025—cutting monthly U.S. Treasury reductions

from $25 billion to $5 billion, signaling a marginal easing of quantitative tightening (QT)—the balance sheet stood at $3.24 trillion as of the

week ending May 14, up from $3 trillion the prior week. The pace of QT remains slow.

Moreover, for a genuine trend reversal to take hold, the macroeconomy must enter a proactive inventory replenishment cycle with

synchronized volume and price expansion across the supply chain. Currently, however, U.S. economic data show weakness: consumer

confidence has slipped, manufacturing PMI has yet to sustain expansion territory, and growth momentum is in question.

The End

Once the above signals align simultaneously, they would provide strong evidence of a meaningful mid-term market trend reversal.

Conversely, if trade talks with the EU break down or the Fed maintains a hawkish stance at its June meeting, the U.S. equity market could

face a second leg down, potentially retesting the 5,500–5,600 support zone.