S&P 500 has climbed above its February peak after a rapid 20% rebound

The S&P 500 closed above its February peak on Friday, reclaiming the ground it lost during the brutal April selloff that wiped out nearly 20% of its value.

The rebound happened in just four months, faster than most expected, but traders aren’t celebrating. Compared to its last climb, this one feels cautious, hesitant, even uneasy. The index is now sitting just 0.5% above its February 19 high, but the energy behind this rally isn’t the same, and the numbers say so.

According to CNBC, corporate earnings for the last quarter beat expectations, and forward estimates have gone up, which brought the market’s valuation down slightly; from 22.5 times forward earnings in February to 22 now.

It’s still expensive by historical standards, but investors usually don’t care when profits are up and the Fed isn’t pulling liquidity. The equal-weighted S&P is still stuck near its decade average, showing that gains are mostly concentrated in a few big names.

Strategists pull back while systematic funds sit out

This new high hasn’t restored full confidence on Wall Street. At the beginning of the year, the CNBC Market Strategist Survey showed a median target of 6,600 for the S&P 500, implying a 12% return for 2025. Some strategists even predicted 6,700. But that optimism disappeared after the April panic. The median target is now down to 6,057, which is about 2% lower than the current index level of 6,173.

Investor mood has also changed. The Investors Intelligence survey shows a weak spread between bulls and bears, even after the 27% rally since the April low. There’s no wild optimism in sight. Deutsche Bank’s data puts overall equity exposure in the 30th percentile of all levels since 2010. Systematic funds, which base positions on market volatility and momentum, have stayed cautious.

Meanwhile, market conditions do look slightly better now than back in February. The US Dollar Index, crude oil prices, and the 10-year Treasury yield are all lower. Credit spreads are a bit wider but still manageable. And the market is now closer to a potential Federal Reserve rate cut, likely in September if odds hold.

Speculative traders chase meme stocks and IPOs

The rally also got some help from wild bets in retail trading. One in every seven Russell 3000 stocks is up 50% or more since April 8, according to Bespoke Investment Group. Retail investors are jumping into risky, thinly traded names again. The VanEck Social Sentiment ETF (BUZZ) is up 50% in just 11 weeks, breaking its 2021 meme-stock-era high. Same story for the Goldman Sachs Retail Favorites index.

Circle Internet Group, a stablecoin company, went public a little over three weeks ago at $31. Some early investors cashed out right away. By last Monday, it had surged to $263. By Friday? It dropped to $180. Most days, more than half of its available shares are being traded. That kind of action isn’t new. Circle is just the latest name in a sequence of fast-moving stocks; first it was CoreWeave, then Super Micro, before that, Nvidia.

That kind of behavior isn’t being criticized though, just observed. These high-risk trades are part of a bull market’s late stages, but it’s impossible to say exactly when things tip from excitement into instability. Stocks tied to capital markets, like Goldman Sachs and JPMorgan, are also hitting new highs in both price and valuation, showing that some investors still believe there’s more gas in the tank.

On Friday, a brief intraday drop happened when President Donald Trump ended trade negotiations with Canada. The decision came as retaliation for Canada’s planned digital services tax. The pullback didn’t last, but it showed how much of the market’s current momentum depends on there being no new tariff threats.

The day’s other numbers didn’t help either. Personal income, spending, and PCE inflation all came in below expectations. Investors are now watching next Thursday’s employment report closely. It could push the Fed closer to a rate cut, though one isn’t expected at the July meeting.

So far this year, the S&P 500 is up 5%, which is about half its long-term yearly average. That performance fits what many expected coming into a third year of a bull market and a post-election year. Market watchers had warned that 2025 would be slower after two straight 20% years. That prediction’s holding up.

The recent rebound looks a lot like past near-bear recoveries—similar to what happened after sharp corrections in 1998 and late 2018. But there are red flags. Only a small number of stocks hit new highs with the index, even though overall market breadth is solid. The median S&P 500 stock is still down more than 12% from its own 52-week high.

Technically, the index is getting overbought. But a few weeks ago, it cooled off with a mild pause, not a crash. That can happen again, but it’s no guarantee. The last time the index hit a high in February, it collapsed shortly after. Whether or not it happens again this time is the real question.

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