By Patti Domm

The stock market's fortunes have been steered by the White House's highly unpredictable tariff policies. The result: volatile markets and a murky outlook.

For that reason, some strategists believe that while the market found a bottom in early April, it could stay stuck in a trading range and not break to new highs until there is real clarity around tariffs. Stocks could also retest the lows if it appears a recession is on the horizon.

Sam Stovall, chief investment strategist at CFRA, has a name for this transitional moment: stocks are in a "manufactured correction." Politics started the move in stocks and can end it.

"The president has the ability to turn things around on a dime," Stovall said.

President Donald Trump's April 2 so-called liberation day tariff announcement shook financial markets and sent the stock market into a tailspin. His decision to pause many of those tariffs for 90 days helped steady the bond market. Stocks have climbed back from lows hit on April 7.

"The fact is, you're going to have to see [trade] deals" for stocks to continue to rise, said Julian Emanuel, Evercore ISI head of equities, derivatives and quantitative strategy. Trump officials "can say whatever they want, but who knows how close they are or not," he said.

The Federal Reserve's rate-setting committee will meet next week. Emanuel expects the Fed not to cut rates.

"That just leaves us with an expensive stock market that is looking for proof whether there will be or won't be a recession," he said.

Emanuel expects the S&P 500 to trade mostly between 5,100 and 5,600 until there are some substantive announcements. The index hit a high of 6,147 in February and was off nearly 19% at 4,835 on April 7. The S&P has since snapped back sharply, to 5,604 at Thursday's close.

Mixed economic data show the economy slowing but not necessarily in recession. First quarter gross domestic product fell 0.3%, we learned Wednesday, but Friday's jobs report showed a gain of 177,000 jobs.

For investors, now may be a good time to clean up the portfolio, using dollar-cost averaging to add to names that make sense. Emanuel suggests looking for cheaper prices among some "fallen angel" favorites that have good buyback policies, low momentum, and strong sentiment. Some of those that are rated outperform by Evercore ISI include Bank of America, Pinterest, Vertiv Holdings, Vistra, AES Corp, and Marvell Technology.

Another strategy would be to pare back stocks that have high momentum, but weak sentiment and aren't big buyers of their stock.

Those companies include Fortinet, Tesla, Sun Communities, Boeing, Cloudflare, and CMS Energy, according to Evercore ISI.

The stock market's biggest problem is the 145% tariffs on Chinese goods, said Jimmy Chang, CIO of Rockefeller Family Global Office. Those tariffs are in effect, and China has announced a 125% tariff on U.S. goods.

Retailers will soon be ordering holiday merchandise. "What do they do? Do they just absorb the tariffs?" he said.

Chang believes the stock market has bottomed, unless there is a recession. The S&P 500 could then drop as much as 30% from its high -- to about 4,300.

He puts the chances of a recession at 50-50.

"If you want to be positively biased, you can argue that we have probably seen the most damaging policy rollouts in Trump's presidency, assuming nothing tops what just happened in April, where you have these aggressive reciprocal tariffs higher than anyone anticipated," said Chang.

He said the markets were also spooked by Trump's challenge to the Fed's independence. Trump criticized Fed chair Jerome Powell for not lowering interest rates, but then calmed the markets when he said he has no intention of removing Powell.

"The good news is the administration is actually sensitive to what happened in the bond market, so they were walking it back. You could argue the path ahead is one of de-escalation," said Chang. He expects a sideways stock market.

Trump could help send it up later in the year by easing trade tensions, advancing deregulation, and cutting taxes.

Stovall said the speed of the decline suggests the market may have seen the worst, since rapid declines are usually swift and shallow. It took 22 days for the S&P 500 to fall 10%. The average time frame is 80 days for 10% declines or more.

"The market is gradually creeping its way higher as a result of the absence of any new tariffs," and it could continue to rise if the tariff uncertainty is removed, he said.

Earnings were still solid in the first quarter, though companies reduced guidance, and the forecast for the full year has moved lower. Stovall said the expectations for full year S&P 500 earnings are now for a 7.3% gain, down from the 9% gain expected March 31.

The message from the market is that the tariff uncertainty needs to be cleared up before the business and economic outlook sours too much.

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May 02, 2025 14:07 ET (18:07 GMT)

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