S&P 500 Rally Extends After April 2025 Bottom
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Fazen Markets Research
Expert Analysis
S&P 500equities
The S&P 500 has continued to build on the floor identified in April 2025, producing what veteran investor Milton Berg described as a "historic rally" that he believes is only in its early innings (MarketWatch, Apr 23, 2026). MarketWatch reports that Berg — who publicly called the April 2025 bottom — views the expansion in multiple sectors, improving corporate earnings trajectories, and stabilizing macro indicators as the primary drivers of further upside. The index has, by MarketWatch's account, risen roughly 18–22% from the April 2025 low through mid‑April 2026, converting a 12‑month trough into a sustained advance (MarketWatch, Apr 23, 2026). Institutional investors are parsing breadth, sector leadership rotation, and policy signals to determine whether the move is durable or a cyclical bounce. This piece examines the context, relevant data, sector-level implications, and risks, and offers a Fazen Markets Perspective on where the rally may go from here.
The April 2025 low is now the reference point for a year‑long market transition. That bottom followed a protracted period of elevated volatility and policy tightening across 2023–2024; by April 2025, many investors had shifted to more constructive positioning. According to MarketWatch (Apr 23, 2026), the call of that low by commentators such as Milton Berg became a focal narrative as markets recovered. The significance of a durable low is not purely symbolic: it marks a change in investor expectations about earnings growth, discount rates, and liquidity conditions that underpin valuation expansion.
From a macro vantage, the past 12 months have seen a recalibration of rate expectations and a partial reacceleration in corporate profit margins in key sectors. Real yields — a major determinant of equity multiples — dictate the present value of future cash flows; even small movements in the 10‑year Treasury yield can materially change optimal P/E levels for large‑cap growth names. For many institutional portfolios, the interplay of bond yields, nominal GDP growth, and earnings per share (EPS) revision trends over the last year is the principal driver behind the sentiment shift that underpins the rally.
Milton Berg's characterization of the move as "just getting started" should be read through the lens of market amplitude and leadership. Historically, sustained rallies that begin after a pronounced low tend to broaden from defensive leadership to cyclical sectors as evidence accumulates for durable economic improvement. Conversely, rallies that remain narrow and concentrated in a handful of mega‑caps are more vulnerable to mean reversion. As of the MarketWatch report (Apr 23, 2026), breadth metrics and sector dispersion remain data points to watch.
Price action since April 2025: MarketWatch cites a rise in the S&P 500 of roughly 18–22% from the April 2025 low through mid‑April 2026 (MarketWatch, Apr 23, 2026). That gain converts into a 12‑month period that contrasts sharply with the prior 12 months, when the index endured drawdowns and sideways action. A move of that magnitude over 12 months implies a significant rerating or substantive EPS upgrades; institutional managers evaluate whether the return is driven by multiple expansion, earnings recovery, or both.
Earnings and valuation inputs: While headline returns are useful, the decomposition between EPS growth and multiple change is critical. If EPS accounts for the majority of the performance, the rally has stronger fundamental backing; if the valuation multiple has expanded materially with little earnings improvement, the move is more fragile. Using reported data through Q1 2026 (corporate filings and sell‑side revisions), several S&P sectors — notably Information Technology and Consumer Discretionary — show a higher contribution from EPS revisions, while Utilities and Real Estate have benefited more from multiple expansion.
Interest rates and liquidity: Rate expectations remain a barometer for the trade. MarketWatch's profile highlights that the rally gained traction as short‑term rate volatility eased and Fed‑funds pricing incorporated a slower pace of hikes than feared in 2024. For investors, the key metrics are the 10‑year Treasury yield, the federal funds futures curve, and the slope of the yield curve; all three determine the discounting framework for equity valuations. A sustained decline in real yields by even 50 basis points over a quarter materially raises the net present value of long‑duration cash flows, a dynamic that supports growth sectors and any narrative of an ongoing rally.
Leadership has implications for durable returns. A rally dominated by mega‑cap tech and AI‑beneficiaries tends to produce index gains with limited breadth; a rotation into Industrials, Financials, and Energy signals confidence in cyclical expansion. According to company reporting cycles through Q1 2026, technology remains the largest contributor to S&P index performance but sector breadth has expanded into select cyclical names. For institutional allocators, the question is whether cyclical participation becomes the next phase — a development consistent with Berg's view of a rally maturing rather than peaking.
Banks and Financials are sensitive barometers: higher nominal growth and steeper yield curves tilt revenue mix toward net interest income, but credit quality and loan growth dynamics are equally important. Year‑over‑year comparisons show Financials have lagged Technology in return but outperformed in recent months as spreads normalized. Energy and Materials performance depends on commodity dynamics and capex cycles; a sustained move into these sectors would reinforce the thesis of a broadening rally.
Large caps versus small caps: Small‑cap indices tend to lead in the early stages of economic reopenings and more cyclical expansions. Relative performance between the Russell 2000 and the S&P 500 is therefore a useful heuristic for whether the rally is becoming more economy‑wide. If small caps begin to outperform on a sustained basis, it indicates a structural shift in investor risk appetite away from concentration risk and toward cyclical exposure.
Valuation vulnerability is the principal near‑term risk. Even with improving earnings, higher valuations heighten sensitivity to adverse macro surprises such as hotter‑than‑expected inflation, policy tightening, or geopolitical shocks. An equity market that has gained roughly 18–22% in 12 months (MarketWatch, Apr 23, 2026) is more prone to drawdowns if any of these shocks materialize. For risk managers, stress testing portfolios against scenarios with 10–15% market retracements remains prudent.
Earnings disappointment risk: The rally's durability depends on subsequent EPS beats and upward revisions. If Q2–Q4 2026 guidance fails to keep pace with current market expectations, sentiment can reverse quickly. Historically, expectations reset faster than earnings reality, so monitoring revision breadth (percentage of companies raising vs lowering guidance) is as important as headline aggregate EPS.
Liquidity and positioning: High concentration in a subset of mega‑caps increases systemic sensitivity; when market breadth is narrow, liquidity withdrawals can exacerbate moves. The interplay between institutional flows (e.g., passive funds, ETFs) and active rebalancing may amplify volatility during risk‑off episodes. Monitoring flows into SPX‑tracking ETFs (SPY) and growth‑oriented products (e.g., QQQ) provides an early warning on speculative excess.
Our contrarian read is that a durable S&P 500 advance requires both continued earnings upgrades and a normalization of breadth. While consensus narratives emphasize either the return of growth or the benign macro backdrop, history shows that the most resilient rallies combine both. We therefore view the current market as being in an "early expansion with conditional durability" phase: upside remains conditional on a second pillar of evidence — either a cadence of EPS upgrades across more sectors or a definitive easing in real rates.
Specifically, Fazen Markets sees three non‑obvious risks and opportunities. First, structured credit spreads and corporate cash hoarding levels will determine how capex decisions affect mid‑cyclical sectors; this is less visible in headline returns but critical for 6–12 month outcomes. Second, passive index weight concentration could mask underperformance in a majority of constituents; active managers can exploit dispersion if rotation accelerates. Third, geopolitical supply‑chain shocks remain a latent inflationary risk that could reprice both rates and risk premia rapidly.
We recommend investors consider scenarios rather than certainties: build position sizing rules tied to breadth and earnings revision indicators, and price portfolio resilience into allocations rather than chasing headline index returns. For those evaluating tactical shifts, internal research at Fazen suggests prioritizing companies with high free cash flow conversion and defensible ROIC in valued industries — these attributes historically deliver superior risk‑adjusted returns across market regimes. For more on our thematic positioning and risk frameworks, see our equities strategy and macro commentary topic and market commentary.
Over the next 3–12 months the market will litigate two hypotheses: whether the April 2025 low marks the start of a multi‑year bull phase or a durable cyclical rebound that will eventually meet dispersion and mean reversion. If earnings continue to reaccelerate and real yields decline modestly, the bull case for a sustained S&P advance is credible. Conversely, if inflation surprises push real yields higher or corporate margins compress, the present valuation expansion could reverse.
A practical near‑term gauge will be sector breadth and the behavior of small‑cap indices relative to the S&P 500. A confirmed rotation into cyclicals and consistent small‑cap outperformance would validate Berg's more expansive view of the rally's runway. Investors should also watch fixed‑income signals: a persistent steepening of the curve with improving credit spreads supports risk‑on positioning, while flattening or inversion signals caution.
Watch the data flow: upcoming quarterly earnings, CPI and PCE prints, and Fed communications will be the catalysts that either legitimize or curtail further multiple expansion. In a market that has already moved appreciably since April 2025, the path of least resistance depends on whether fundamentals can keep pace with sentiment.
Q: What practical indicator should investors use to confirm the rally is broadening?
A: Look at the percentage of S&P 500 constituents above their 50‑day moving average and the Russell 2000 vs S&P 500 relative performance. A sustained increase in the share of names trading above trend lines, combined with small‑cap outperformance, historically indicates a genuine broadening of participation and reduces single‑name concentration risk.
Q: How would a 50 basis‑point move in the 10‑year Treasury yield affect valuations?
A: A 50bp increase in the 10‑year yield raises discount rates and compresses present values for long‑duration cash flows; mechanically, high‑growth, long‑duration names (large tech) are more sensitive than value or cyclical names. Portfolio impact depends on duration exposure, but risk managers should reprice scenarios to model 10–15% relative drawdowns among the most rate‑sensitive names.
Q: Is a 20% 12‑month gain historically indicative of a multi‑year bull market?
A: Not necessarily. While some multi‑year bull markets begin with double‑digit gains in the first 12 months, others are followed by consolidation or drawdown if earnings do not follow. The determining factor is the sustainability of earnings revisions and the macro path for real rates; absent those, early gains can be reversed.
The S&P 500's post‑April 2025 advance, characterized by an approximate 18–22% rise through mid‑April 2026 (MarketWatch, Apr 23, 2026), is substantively validated by improving earnings and softer rate volatility but remains contingent on a broadening of participation and continued EPS upgrades. Investors should monitor breadth, small‑cap performance, and real yields as the decisive signals for the next leg of performance.
Disclaimer: This article is for informational purposes only and does not constitute investment advice.
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