Skepticism Over Us Stock Rebounds as Rally Chasers Pour in

U.S. stocks staged a strong rebound on Tuesday following a steep three-day decline — the worst in five years — as investors capitalized on the most oversold market conditions since the pandemic and grew hopeful that the Trump administration might soften its aggressive tariff policies.

‍

The S&P 500 Index surged 3.34% shortly after markets opened in New York, putting it on track for its best daily performance since November 2022. The rally came after the index had shed over $5 trillion in value in just three sessions, with Monday’s lows marking a drop of more than 20% from its recent record high.

‍

A wave of optimism hit the markets after reports suggested a possible delay in tariff enforcement, sparking a sharp bounce. The index found key technical support at the 5,000 level. Meanwhile, U.S. Treasury yields also reversed direction, with the 10-year yield rising back above 4% after a brief rally in bonds.

‍

“This is a typical reflexive rebound you get after plunging deep into oversold territory in such a short span,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. “We’re in an extremely volatile environment right now, and that cuts both ways — up and down.”

‍

Market volatility remained elevated, with the Cboe Volatility Index (VIX) topping 50 on Monday and hovering near 40 on Tuesday, far above its historical average. More than 29 billion shares traded hands in Monday’s volatile session, highlighting the scale of investor activity amid the uncertainty.

‍

Despite the uptick on Tuesday, the S&P 500 still sits about 15% below its February 19 peak. Monday saw the 14-day Relative Strength Index fall to 23 — the lowest level since the 2020 pandemic crash — well beneath the threshold that typically signals the market is due for a bounce. These extremely low readings have contributed to the rally, forcing institutional investors to reassess their bearish positions.

‍

Many big-money traders, caught off guard by the market’s rebound, rushed to cover short positions as oversold equities rallied sharply. Hedge-fund manager Jim Roppel, founder of Roppel Capital Management, called Tuesday’s move a classic short squeeze. “This kind of rebound has all the hallmarks of a short squeeze,” he said in a phone interview. “But when stocks are this extremely oversold, it’s not surprising to see a strong rally like this take hold.”

‍

Investor sentiment also improved on Tuesday following comments from Treasury Secretary Scott Bessent, who hinted at upcoming trade negotiations that could benefit the U.S. economy. Speaking on CNBC, Bessent said the administration was actively considering new trade deals with key partners. “I’ve seen the call list at the White House, and it’s substantial,” he said. “There was a conversation last night about which countries should be prioritized.”

‍

Japan appears to be first in line for tariff discussions, with potential talks aimed at reversing some of President Trump’s duties before they take effect at 12:01 a.m. Wednesday. China, on the other hand, responded more aggressively, stating on Monday night that it is prepared to “fight to the end.” Nonetheless, the market has taken more comfort from negotiations with Japan than it has feared retaliation from China or the European Union.

‍

Andrew Tyler, head of global market intelligence at JPMorgan Chase & Co., said in a note to clients that while China’s response is concerning, “the market is primed for a relief rally,” and developments with Japan are currently carrying more weight with investors. Tyler emphasized that the post-selloff setup favors a tactical rebound in stocks.

‍

JPMorgan strategists, including Tony SK Lee, also noted that chances of a market recovery have increased after the recent drop. They cited technical indicators like the Arms Index — also known as TRIN — which evaluates the volume of advancing versus declining stocks. On Monday, the TRIN dropped to 0.47, a reading that indicates strong demand for equities and has historically supported a short-term bounce.

‍

Adding to the bullish momentum, hedge funds and long-only asset managers turned into net buyers on Monday, after having sold off global equities on Thursday at a pace not seen since early 2020.

‍

According to Goldman Sachs Group Inc., net buying activity reached $1.5 billion on Monday — the strongest hedge fund buying trend since January. This shift occurred even as bearish bets against the SPDR S&P 500 ETF Trust (SPY), the largest exchange-traded fund tracking the index, hit their highest levels since December.

‍

In summary, Tuesday’s rally came as investors seized on deeply oversold market conditions, speculation of a tariff policy shift, and early signs of trade diplomacy. While the broader environment remains volatile and uncertain, the powerful rebound reflects a market eager for relief — and quick to react to even the slightest hint of positive news.

‍