A solid rebound could be in store for U.S. stocks after a wildly volatile few weeks, according to Piper Sandler. Craig Johnson, the firm’s chief market technician, pointed out that the S & P 500 closed Tuesday’s session in oversold territory. Specifically, its relative strength index reading fell to 28.3. A reading below 30 indicates an asset is oversold and may be due for a recovery. “We expect a relief rally of 3% to 5% soon (at minimum),” he said in a note to clients. The S & P 500 has been under pressure recently, as escalating tensions between the U.S. and key trade partners dampens consumer sentiment and raises worries over a possible recession. The U.S. has imposed tariffs on imports from Mexico, Canada and China. The latter countries have retaliated with levies of their own on U.S. goods. The benchmark briefly dipped into correction territory on Tuesday, down more than 10% from a record high set in February. This week alone, it is down about 3%. That said, the S & P 500 rose modestly on Wednesday after the release of softer-than-expected U.S. inflation data . “Investor pessimism runs high as they … react to the ongoing tariff and geopolitical headlines out,” Johnson wrote. Ned Davis Research agrees stocks may be due for a rebound as pessimism reaches extremes. “Watch for sentiment reversal from extreme pessimism,” wrote Tim Hayes, the firm’s chief global investment strategist. “We’re more likely to see widespread recognition that the fears have not been justified, in which case equities will start recovering from the extreme pessimism. That would be the message of a buy signal.”
