The rebound of US stocks cannot hide the hidden worries, and Wall Street is skeptical about the sustainability of the rising market

Since President Trump announced the imposition of tariffs on April 2, the U.S. stock market has nearly recovered all its losses. However, Wall Street strategists do not believe the stock market will continue to rise.

Keith Lerner, Co-Chief Investment Officer at Truist, wrote in a report to clients on Monday: "Unlike the (market) lows, there is much less 'bad news' being digested by the market currently, and the outlook remains highly uncertain. If the market receives some bad news, the buffer space will be reduced."

Since the U.S. stock market hit bottom on April 8, the S&P 500 index has risen by 11.5%, the Nasdaq Composite Index has increased by about 14.4%, and the Dow Jones Industrial Average has gained about 7.7%. On April 9, President Trump suspended tariffs for 90 days, triggering a rise in the stock market. However, the stock market has continued to rise since then, and stock strategists point out that the market narrative has not changed much.

The uncertainty surrounding tariff policies remains high, and the outlook for corporate earnings is still chaotic. Economists believe the likelihood of a U.S. economic recession has been rising. This may mean that the stock market will not have much room for further gains until another catalyst appears.

Mike Wilson, Chief Investment Officer at Morgan Stanley, stated in a report to clients on Sunday that he expects the S&P 500 index to trade in the range of 5000 - 5500 points in the near term. Wilson believes that reaching a "substantial" tariff agreement with China to lower actual tariff rates may be necessary for the index to sustain above 5500 points for a period of time. A Federal Reserve rate cut—assuming the cut is not driven by economic data indicating recession risks—and upward revisions to earnings could also drive the stock market higher. Wilson stated: "Until we see a clearer shift in risk appetite regarding these factors, range trading may continue."

After two years of debate about how high the bull market can go, stock strategists now believe that the risks in the stock market may be to the downside. On Tuesday, HSBC became the 12th major Wall Street institution to lower its year-end target for the S&P 500 index since the start of Trump's trade war. Five firms expect the S&P 500 index to remain flat or lower than current levels this year.

Nicole Inui, Head of U.S. Equity Strategy at HSBC, lowered the year-end target for the S&P 500 index from a previous forecast of 6700 points to 5600 points. Inui advised clients to adopt a "defensive" allocation in their portfolios amid rising inflation, slowing economic growth, and the risk of a potential recession Inui wrote: "We expect the market to oscillate between recession and stagflation until tariff turmoil subsides, the Federal Reserve begins to ease policies, and/or inflationary pressures fail to build."

After the recent decline, Inui believes the market has priced in a "shallow" recession or a potential "mini" stagflation, where inflation rises while economic growth weakens. However, there are widespread concerns that the extent of economic growth deterioration will exceed initial expectations. Then, as Inui wrote, "the recession trade will begin." Historical experience shows that the more pronounced the economic downturn, the further the stock market will decline.

Inui's research indicates that during severe recessions, the S&P 500 typically falls nearly 30% from recent highs. So far this year, the S&P 500 has dropped 18.9% from its peak in February.