Under the shadow of tariffs, U.S. stocks flicker with "buy" signals as Wall Street remains on edge

According to Zhitong Finance APP, typically, when market sentiment towards the U.S. stock market becomes so gloomy, volatility increases, and analysts significantly lower return expectations, it indicates that risk-taking investors will rush into the market. However, Wall Street insiders warn that due to the uncertainty of tariff policies and economic data, the aforementioned strategy does not apply.

For Max Kettner, Chief Multi-Asset Strategist at HSBC Holdings, this is the first time in years that he has set aside the positioning and sentiment indicators he usually focuses on and underestimated the likelihood of a rebound.

Kettner stated, "I advise clients to ignore such signals at this moment, as policy uncertainty remains high and is unlikely to disappear anytime soon."

Investors are forced to face a new reality: the typically reliable buy signals have been disrupted by the White House's erratic policy statements, making it nearly impossible to predict the next move of the stock market.

"Buy" signals flashing

To some extent, investor sentiment is extremely pessimistic, which often provides opportunities for bargain hunters.

A survey by the American Association of Individual Investors shows that bearish sentiment indicators have remained at 50% or above for nine consecutive weeks, setting a record. Since 1987, there have only been three periods when market sentiment was this bad, with subsequent stock market performance being mixed.

The S&P 500 index remains in a state of uncertainty.

Paul Hickey, co-founder of Bespoke Investment Group, stated, "During this period, things have been getting worse. Today, investors still feel worried as economic weakness seems to have become a foregone conclusion."

Led by Michael Hartnett, U.S. Bank strategists believe that the recent rise is a painful trade that will squeeze the stock market higher. They advise clients to sell on rallies and warn that the conditions for a sustained rise are not yet in place, as recession and inflation risks intensify, and trade policies may continue to drive investors out of the U.S. stock market.

A recent survey by Bank of America found that fund managers are "extremely pessimistic" about the macro environment—this pessimism has historically signaled an impending reversal in the stock market. However, based on fund managers' positioning, they are "not entirely bearish on the market," which means there is still room for further declines in the stock market.

Buy signals are even stronger. BMO Capital Markets stated that negative earnings revisions are a reliable leading indicator of past stock market rises, with other similar indicators including investors' pessimistic expectations, a decline in price-to-earnings ratios, and risk-averse sentiment triggered by rising volatility. The company estimates that historically, these indicators suggest an average return of at least 10% over the next year.

Wall Street remains skeptical Currently, despite retail investors continuously buying in, Wall Street remains skeptical. According to the fund flow monitored by Deutsche Bank, institutional investors are largely neutral on the market as they "remain caught between escalating macro concerns and the potential easing of trade tensions."

Before the White House makes a clearer statement, the U.S. stock market will remain in a troubling state of uncertainty.

 Dave Mazza, CEO of Roundhill Investments, stated, "You have to figure out how to incorporate tariffs into pricing, which is nearly impossible—if companies can't model it, how can investors predict?"  

He also mentioned, "Indicators such as the put-to-call ratio and the proportion of stocks at 52-week lows do not suggest a 'buy.' Therefore, the market situation is mixed, and the bottom remains difficult to determine."