A lot of noise about nothing. Donald Trump cancels tariffs as easily as he threatens to impose them. Markets swing from hot to cold. Investors move from "Sell America" to TACO, or "Trump Always Chickens Out." Experienced traders know this template is well?worn, so the S&P 500's drop in response to an escalation of the US?Europe trade conflict did not faze them. On the contrary, it created a chance to buy the dip — and they took it.

Stripped of geopolitical hoopla, there is little doubt about the uptrend in the broad equity index. The US economy is as strong as a bull and can withstand a federal funds rate of 3.75%, to which the Fed is most likely to return in June. Wall Street forecasters have raised corporate earnings forecasts to about 14% for 2026.

Performance of S&P 500 stocks beating estimates

Yes, there is downside. Among S&P 500 companies that have reported for the fourth quarter, 81% beat estimates. Yet their shares lagged the broad index by 1.1 percentage points. There has not been such a negative gap since 2017. In such a nervous market, it is hard to deliver consistently strong returns. Once investors forget geopolitics, attention can shift to specific sectors.

Some say they already have. The existence of a tentative framework with NATO over Greenland suggests that Donald Trump has abandoned the idea of buying the island outright. Talks may instead concern discrete areas for military installations. As a result, markets are reverting to the theme of rotation.

The small?cap Russell 2000 index is up almost 9% year?to?date and has already notched seven record highs. For the whole of 2025, there were only slightly more — nine. It has outperformed the S&P 500 for 13 consecutive trading days, the longest streak of gains since June 2008.

US stock index dynamics

Trump's retreat is easy to understand. The top 10% of US households account for roughly half of all consumer spending, and their wealth is tied to the ongoing rally in American equities. So either the dog wags the tail, or the tail wags the dog. Either the strength of the US economy is powering the S&P 500 higher, or the rally in the broad index is boosting GDP.

Thus, the shift by investors from the "Sell America" trade to TACO culminated in buying the dip in the stock market. The geopolitical noise has cleared. It is time for the economy and corporate earnings to take center stage.

Technically, the daily chart shows that the S&P 500 is playing out a 1?2?3 reversal pattern and returning to a bullish trend. The first attempt to seize fair value at 6,910 failed. However, a successful retest of the resistance level would provide a basis for building or adding long positions in the broad market index.