ORLANDO, Florida, June 5 (Reuters) - By any measure, the

recent resilience of U.S. stocks is remarkable, with Wall Street

powering through numerous headwinds to erase all its

tariff-fueled losses and move into positive territory for the

year. And although these headwinds haven't gone away, the rally

may still have some juice left in it.

Since the April 7 lows plumbed after U.S. President Donald

Trump's 'Liberation Day' tariff debacle, the S&P 500 and Nasdaq

are up 23% and 32%, respectively. 'Big Tech' has led the way,

with the Roundhill 'Magnificent Seven' ETF gaining more than

35%.

On the face of it, this is remarkable given that many of the

concerns that sparked the crash - elevated U.S. import tariffs,

tensions between the world's two largest economies, and chaotic

and unorthodox policy out of Washington - remain in place today.

Equity bulls are essentially betting that many things will

go right in the coming months: the Federal Reserve will cut

rates; no economic downturn; inflation won't spike despite the

tariffs; U.S. tech companies will continue generating strong

results; fiscal concerns in Washington will moderate; and

perhaps most importantly, Trump will continue to back down on

his most aggressive tariff threats - or to use the acronym de

jour, investors are assuming the 'TACO' (Trump Always Chickens

Out) trade will hold.

That's a lot of stars aligning.

Some of the biggest names in finance are skeptical,

particularly regarding the U.S. fiscal outlook. Bridgewater

founder Ray Dalio and JP Morgan CEO Jamie Dimon, both long-time

deficit hawks, this week repeated their warnings that the U.S.

debt is unsustainable. But these calls have fallen on deaf ears,

or equity investors simply think any fiscal fallout will take

years to materialize.

SHORT-LIVED DIPS

On the one hand, investors - especially the retail crowd

believed to be driving this rally - appear to be overly

optimistic. But looked at another way, U.S. equity investors may

not be ignoring today's underlying risks, but simply viewing

them less apocalyptically than they did a few months ago.

Indeed, the overwhelmingly negative sentiment from earlier this

year paved the way for the recent rebound.

Sentiment among institutional investors reached extreme

levels of bearishness in the wake of 'Liberation Day', and

recession fears ballooned to historically high levels as well,

Bank of America's April fund manager survey showed.

Meanwhile, May's survey showed fund managers holding the

biggest underweight position in U.S. equities in two years. When

sentiment and positioning are that stretched, it doesn't take

much for prices to snap back in the opposite direction.

If the latest American Association of Individual Investors

(AAII) Sentiment Survey is any guide, the snap back in equities

still has room to run. Pessimism over the short-term outlook for

U.S. stocks increased to an "unusually high" 41.9% last week,

above its historical average of 31.0% for the 26th time in 28

weeks.

As HSBC's multi-asset strategy team noted this week, it is

precisely because these sentiment and positioning indicators are

being kept "thoroughly in check" that market dips now are

short-lived.

It's also good to remember that even though Wall Street has

erased its early losses and valuations are rising back towards

their recent highs, U.S. stocks are still laggards this year.

The S&P 500 is up only 1.5% in 2025 thus far, while the MSCI

All Country World Index has jumped around 6%, hitting an

all-time high on Wednesday. This suggests there may be room for

U.S. outperformance on a relative basis in the coming weeks and

months, though, of course, relative value metrics might still

favor non-U.S. markets.

This doesn't mean we should expect capital to start flooding

back into the U.S. again. International institutional investors

may continue to rethink their allocation to U.S. assets,

creating a long-term risk to U.S. stocks. But for now, domestic

U.S. investors are picking up the slack.

(The opinions expressed here are those of the author, a

columnist for Reuters)