Investing.com — The S&P 500 rose last week, driven by a combination of reduced trade tensions and political optimism.
According to the Sevens Report, "there were several legitimate reasons for last week's rally, including (in order of importance): de-escalation of the trade war with China, reduced tension between Trump and Powell, growing expectations for the announcement of numerous trade agreements, and solid results from Q1."
However, the Sevens Report warned that "none of these events are materially positive" and cautioned that while "the still negative sentiment has helped the S&P 500 temporarily break through 5,500 with some good results or greater trade de-escalation briefly, I don't believe the news has become good enough to sustain a rally."
The strategist highlighted that the tensions between Trump and the chairman of the Federal Reserve, Jerome Powell, are far from resolved.
"Trump understands that firing Powell would harm the markets, so he (probably) won't try that, but that doesn't mean the negative headlines are over," said the Sevens Report.
They added: "The Fed meets again on Wednesday, May 7, and it is very unlikely to cut rates at that meeting, which could provoke Trump's ire."
On the trade front, the Sevens Report noted that while tariff reductions are better than escalations, "the baseline level of tariffs will be much higher than it was in January, and this will be a hurdle for growth and a boost for inflation."
Looking ahead, the Sevens Report stated that "it is very unlikely that the S&P 500's EPS expectations for 2025 will remain at $270," suggesting that "a reduction of $10 per share to $260 (or even less) seems more appropriate."
"In summary: last week was positive, but it wasn't positive enough to change my outlook that this market is still mainly capped between 5,100 and 5,500 on the S&P 500," concluded the Sevens Report.