At 5,886 points, the S&P 500 has now made back all of its losses from a volatile April. In fact, it’s up 0.04% versus the start of the year, which is quite incredible when you consider all of the price swings we’ve had. From tariff turmoil to AI-disruption, it has been quite a year already. Here’s where I think we go from here.
Selective caution
Even though the market has popped higher from the tariff-induced losses in April, I’m cautious about celebrating that everything is now fine. For example, look at what other assets are telling us. Gold is still close to record highs. Traditionally, it’s a safe-haven asset, meaning that investors buy it when they’re worried about the outlook. If we really were out of the woods, gold prices would be falling sharply.
Another sign is the weak US dollar. It fell a lot during April, as investors fretted about whether the US would go into a recession. Interestingly, this drop has stopped, but it hasn’t rallied. The fact that it’s still very cheap versus other currencies makes me conclude that people aren’t sure if the US economy is actually back on track.
Therefore, I think the S&P 500 might have jumped the gun a bit when it comes to the fundamental outlook. Companies in the earnings season of the past few weeks have reported a mixed bag. Some management teams have withdrawn full-year financial guidance, citing too much uncertainty. Others flagged up excessive stockpiling ahead of tariffs, or voiced concerns about higher operating costs going forward.
Despite this, I do feel there are pockets of opportunity. These mostly relate to companies that could be undervalued due to the recent fear that gripped some people who panic-sold.
Ideas to mull over
For example, investors might want to consider buying Apple (NASDAQ:AAPL). It’s still down 15% this year. Over a broader one-year time horizon, the stock is up 14%.
The business was caught in the firing line with tensions between the US and China relating to the imposition of high tariffs on imports. Even other Asian countries like Vietnam were initially targeted with high tariffs, which had the potential to hurt Apple given that it had already started to diversify manufacturing away from China.
With the recent positive talks from both countries, it looks likely that some trade deal will be struck. Therefore, I see a limited ongoing impact on Apple. Put another way, I don’t feel the situation will be anywhere near as bad as people anticipated this time last month. Yet the share price is still struggling, despite a good set of Q1 results released earlier this month.
I think it looks undervalued based on how trade policy could play out over the rest of the year. Of course, supply chain disruption remains a key risk, but it’s tough to reduce this as a global hardware firm.
