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Stock Rallies Are Losing Their Oomph By Spencer Jakab

The war of words between China and the U.S. escalated over the weekend . That added to angst over President Trump's Friday evening announcement that steel and aluminum tariffs would be doubled . The dollar is down, gold is up again and U.S. stock futures point to losses to start the month.

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Sell in May and go away? That old market trope would have been awful advice this year.

The last time U.S. stocks did so well during the month, East and West Germany had just agreed to reunite and "Back to the Future Part III" was dominating the U.S. box office. Early April's tariff angst laid the groundwork for seasonal pattern-defying gains. Following the best May since 1990, the S&P is now up almost 19% since its post-Liberation Day low and only 4% from a record high.

There have been so many twists and turns in the trade war in such a short time that it's easier to express it in numbers rather than events: The stock market's so-called fear gauge, the CBOE Volatility Index, or VIX, briefly topped 60 on April 7 and settled at 52 the following day-its highest since the Covid-19 panic more than five years ago. VIX peaks have been great short-term buying opportunities.

On Friday, despite President Trump's assertion before the opening bell that China "totally violated" the agreement that had brought such relief, the VIX settled lower for the session at 18.6, which is less than its long-term average dating back to 1990.

The VIX isn't an indicator of pessimism-it represents the cost of insurance against sharp moves. News like the postponement of 50% tariffs on the EU eight days ago or last Wednesday's trade court ruling , are spurring smaller and smaller bounces. Back on April 9, the first time Trump postponed reciprocal tariffs, the Dow had an incredible 3,500 point intraday relief rally.

The market "loves to climb a wall of worry." That can leave stocks on shaky foundations when anxiety actually affects profits, though, and not just stock prices. Strategist David Rosenberg points out that earnings per share growth expectations for the current quarter were 10% in January, 8.4% in March and are below 4% now.

And, while stocks never really got cheap during April's selloff, even those not high on AI look fully valued again. Economist Ed Yardeni says the Magnificent Seven stocks now fetch 27 times forward earnings and the other 493 members of the S&P 500 a still-pricey 19 times. The 25-year average for the entire index is about 16.5.

The best-case scenario on the tariff front is that levies become predictable and don't harm companies and households too much . Unfortunately, the past two months' ructions have awoken a monster that will be harder for the White House to tame-fears about the national debt.

Some investors would love to hop into their time-traveling DeLoreans to pounce on the sort of brief panic we experienced a couple of months ago to reap similar gains. Unfortunately, the sequel is almost never as good.

Stocks I'm Watching

Cleveland-Cliffs , Steel Dynamics , Nucor : Shares of U.S. steelmakers jumped in premarket trading after President Trump said Friday he would double tariffs on and steel and aluminum to 50%.

Stellantis : Higher tariffs on imported metal could raise input prices for carmakers with U.S. factories. Stellantis, whose brands include Chrysler, Jeep and Ram, fell 3% in Italy .

Moderna : The drugmaker said the FDA had approved a new Covid-19 vaccine for use by people aged 65 or above. Shares rallied almost 5% ahead of the open.

Campbell's is scheduled to report earnings before the opening bell.

Blueprint Medicines : French drugmaker Sanofi agreed to buy the U.S. company for up to $9.5 billion. Shares in Blueprint, which specializes in immune diseases and has a market capitalization above $6.5 billion, surged premarket.

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Why the U.S. Economy Will Muddle Through Trump's Tariffs. Probably.

"Soft" survey data about the U.S. economy is still weakening, and we're getting good surprises only because expectations have plummeted. Meanwhile, the hard data on spending has been fine.

The good news: There has historically been no relationship between the soft data and future economic growth. The bad news: There might be this time .

What I'm Reading Americans have poured money into funds promising shelter from the stock market's wild swings. They don't always work as expected. ( WSJ ) The Trump administration wants to sell shares in the companies that facilitate most U.S. mortgages. How it does that will have big impact on home buyers and owners. ( WSJ ) Given all the trouble Nvidia has selling its artificial-intelligence chips in China, one might wonder why the company even bothers trying anymore. The answer is: It can't really afford not to. ( WSJ ) Warren Buffett's retirement isn't the only looming change at Berkshire Hathaway. Who will replace its insurance mastermind? ( WSJ ) Believe it or not, the U.S. has some of the lowest prices in the world for most drugs thanks to smart laws and regulation. Some of the people behind that have lost their jobs. ( Marginal Revolution ) This Day in Markets History

On this day in 1980, Ted Turner launched the world's first round-the-clock TV news service, which he called Cable News Network. Analysts almost unanimously predicted that the new venture, nicknamed the Chicken Noodle Network, would be a disastrous failure.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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June 02, 2025 06:45 ET (10:45 GMT)

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