Wall Street Closes Strong Ahead of Economic Data as Valuation Fears Simmer

Tech Momentum and Tariff Truce Drive Weekly Market Surge

Wall Street ended the week on a strong note as the S&P 500 climbed 0.7% to close at 5,958.38 on Friday, May 16, 2025, marking its fifth straight day of gains. The index also logged a weekly increase of 5.3%, powered by robust tech sector performance and easing U.S.-China trade tensions.

A key catalyst behind the rally is a 90-day tariff pause agreed upon by the U.S. and China. Investors welcomed the temporary reprieve, which helps reduce immediate trade-related uncertainties. According to AP News, the move has improved sentiment across sectors sensitive to global trade, especially manufacturing and semiconductors.

In parallel, strong earnings continue to reinforce bullish momentum. Around 92% of S&P 500 companies have reported their Q1 results, with 78% beating EPS estimates. Forward earnings growth now sits at 13.6%, offering fundamental support to recent gains. Mega-cap stocks including Nvidia, Alphabet, and Apple are leading the charge, with AI-driven optimism fueling tech-heavy index growth.

Technical traders are also encouraged by the S&P 500’s break above its 200-day moving average, a widely watched level that often signals a bullish trend. As reported by Barron’s, the index’s momentum above this resistance suggests the rally could continue if key macroeconomic headwinds remain subdued.

Investors Brace for Valuation Pressure and Sentiment Drag

Despite the upbeat close, market strategists are warning investors to remain cautious as risks resurface. One concern is the market’s elevated valuation. The S&P 500’s forward price-to-earnings (P/E) ratio has jumped to 21.5, well above its five-year average of around 19.5. This suggests stocks may be pricing in too much optimism and could be vulnerable to corrections if macro data disappoints.

Additionally, the latest University of Michigan consumer sentiment index declined to 50.8, missing the consensus estimate of 53.4. This dip in sentiment reflects lingering anxieties around inflation, borrowing costs, and economic growth potential. As Reuters notes, this soft data could weigh on spending and investor risk appetite in the sessions ahead.

Looking ahead, market participants will closely watch next week’s U.S. retail sales and inflation data, which may influence the Federal Reserve’s policy stance. Any surprises could challenge the current risk-on narrative, particularly for overbought sectors.

While the week’s rally reinforces bullish strength, traders are urged to monitor both macroeconomic updates and technical support levels. With valuations stretched and consumer data flashing yellow, the coming sessions could test the market’s resilience. Investors betting on continued upside should do so with selective exposure, especially in sectors still backed by earnings momentum and structural growth themes.