May Market Insights: Why April’s Reset Was Healthy
Written by: Edward Wilhelm, Senior Portfolio Trader
I was thinking the other day how quickly sentiment can flip in this market. At the start of April, it felt like everything had a reason to go lower. The S&P 500 was about 10% off its highs, oil was pushing $110 a barrel, and the situation in the Middle East didn’t look like it had an easy resolution. A few weeks later, the market had already moved past it and pushed back to new highs. That shift didn’t come from a clean backdrop, it came from a market that adjusted and kept moving.
Pullbacks Serve a Purpose
That’s usually how these periods work. They’re uncomfortable when you’re in them, but they serve a purpose. When valuations get stretched, a pullback isn’t something to fear, it’s part of the process. It allows earnings to catch up to prices and resets expectations to a more sustainable level. Without that, rallies tend to be a lot more fragile.
NVIDIA is a good example of that dynamic. Earlier this year, the most valuable company in the world saw its valuation compress by more than 50%. Nothing about the core story changed. The AI buildout is still intact, and the business continues to execute. What changed was that the stock had been priced for perfection, and that kind of setup rarely holds indefinitely. The reset we saw is healthy, not concerning.
AI Infrastructure Spending Remains a Tailwind
Stepping back, we continue to view technology and AI infrastructure spending as one of the key structural drivers for markets. If anything, this earnings season reinforced that view. The largest tech companies didn’t scale back their plans, they expanded them. Combined spending is now tracking toward roughly $725 billion this year alone. That’s a real investment cycle, not just a narrative. Geopolitical events can create volatility around it, but they don’t change the trajectory. In some ways, the valuation reset in names like NVIDIA strengthens the long-term case by giving it a more reasonable starting point.
A Market That Absorbs and Continues Higher
When you zoom out, a market that can absorb a 10% drawdown, work through some of the most stretched valuations in the index and then return to new highs isn’t showing signs of stress. It’s doing exactly what it’s supposed to do. The risks are still there. Oil remains elevated, the Strait of Hormuz is still a major variable, and the situation with Iran is unresolved. But the market’s ability to digest all of that and continue higher has been the defining story of April.
We come out of the month more constructive than we went in, not because the risks have disappeared, but because the foundation underneath it continues to remain strong. If you’d like to talk through how this is shaping our thinking on portfolio positioning, get in touch with the Bouchey team.
