Can S&P 500 ETFs Continue Their Winning Streak?

After enduring a sharp downturn in early April due to aggressive U.S. tariff policies, the S&P 500 has staged a remarkable comeback. The index is on the verge of notching its longest winning streak since 2004, after registering its eighth consecutive winning session on Thursday. This underscores a renewed wave of investor confidence in the face of lingering economic uncertainty. 

The three ultra-popular ETFs tracking the index — Vanguard S&P 500 ETF VOO, SPDR S&P 500 ETF Trust SPY, and iShares Core S&P 500 ETF IVV — gained about 6% each in the last eight days.

The surge was primarily driven by strong earnings reports from major technology firms and easing concerns over trade tensions. Will the strong trend continue? Let’s delve deeper:

Big Tech Earnings Lift Optimism

Strong quarterly earnings reports from software giant Microsoft MSFT and Facebook parent Meta Platforms META spread strong optimism in the tech sector, the heart of the market rally last year. The dual earnings outperformance underscores that strong demand for AI is helping both companies navigate tariff-driven economic uncertainty (read: AI ETFs Set to Gain on Robust Meta, Microsoft Earnings). 

After the closing bell on Thursday, Amazon AMZN and Apple AAPL also announced quarterly results with the beat on both earnings and revenues. However, their shares are falling due to tariff uncertainties. Apple warned of a $900 million tariff headwind in the ongoing quarter. The good news is that Apple is shifting its assembly of all iPhones for the U.S. market to India as soon as next year. About 50% of iPhones for U.S. markets are now produced in India, while iPads, Macs, Apple Watches and other products are increasingly sourced from Vietnam.

Amazon’s CFO Brian Olsavsky issued a cautious outlook due to uncertain consumer demand in the face of President Trump's shifting tariff policies. Amazon faces significant exposure to Trump’s tariffs, primarily through its retail unit.

Tariffs and Trade Deal Talks

The Trump administration seems to be softening its stance on tariffs, raising hopes of a resolution of the trade conflict. At a White House press conference last week, Trump called the current 145% reciprocal tariffs "too high" and said they would "come down substantially." 

Meanwhile, China is evaluating the possibility of starting trade negotiations with the United States. According to several reports, China might suspend its 125% tariff on some U.S. goods, which boosted market sentiment.

Weak Economic Readings

The U.S. economy contracted in the first quarter for the first time in three years due to a monumental pre-tariff import surge. GDP declined at an annualized rate of 0.3% during the first three months, more than the 0.2% decline expected by economists surveyed by Bloomberg

U.S. manufacturing activity shrank the most since November in April. The manufacturing PMI revealed by the Institute for Supply Management dropped to a five-month low of 48.7 in April from 49.0 in March. Further, consumer confidence hit a five-year low last month. The Conference Board’s consumer confidence index fell to 86 in April, representing its lowest reading since May 2020 and the fifth consecutive decline. The decline was due to tumbling consumers’ expectations related to business conditions, employment prospects and future income, reflecting pessimism about the economy (read: Is Weak Consumer Sentiment Hurting Discretionary ETFs?). 

Encouraging Jobs Report

April jobs data shows that the U.S. labor market remained resilient amid the tariff chaos. The economy added better-than-expected 177,000 jobs while the unemployment rate held steady at 4.2%.

Bottom Line

While the current momentum is encouraging, ongoing uncertainties around trade policies and economic indicators suggest that volatility may persist.

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This article originally published on Zacks Investment Research (zacks.com).

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