7-8-25: The S&P Is Flying High, Like Icarus

by Ivan Martchev

July 8, 2025

The S&P 500 is up 5.2% in the last two weeks. I have seen the S&P rise more than 5% in a single week, but typically that comes after a major bear market low, when the market can recover rapidly – not at an all-time high. Yes, we may end up higher, but that would expose the market to headline risk.

This latest rip higher reminded me of the story of Icarus, so I asked Grok, my AI buddy, to summarize that story for my readers, as this bot has been doing a masterful job helping out in these columns lately:

“The myth of Icarus, from Greek mythology, tells of a young man and his father, Daedalus, a skilled craftsman. Imprisoned on Crete by King Minos, Daedalus crafts wings from feathers and wax for himself and Icarus to escape. He warns Icarus not to fly too high, as the sun could melt the wax, or too low, as the sea could soak the feathers. Icarus, thrilled by flight, ignores the warning and soars too close to the sun. The wax melts, his wings fail, and he falls into the sea, which is later named the Icarian Sea. The story highlights themes of hubris, disobedience, and the consequences of ignoring wise counsel.” – Grok.

Unlike the warnings inherent in the story of Icarus, I don’t believe the S&P 500 will crash and burn, but like Icarus, I do think we flew a little too high in a very short period of time. Based on all the available information at the moment, I view the present investing environment as a “glass half full.” I don’t believe we will rise another 5% in the next two weeks, even though it is possible to go a little higher, and I am not looking for anything more than a correction. All corrections after the April low have been contained at the 20-day moving average in the S&P 500, which would be normal. This short-term moving average is more or less 200 points from Friday’s high, so if a correction happens soon, the S&P could drop to about 6100.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What would be the headline risk that could cause a normal pullback? Simply put, “Tariff Tantrum 2.0.” The President has proven that he does not mind creating some volatility in financial markets in order to advance his team’s trade agenda, saying there is no other way to get results; I sure hope they are right.

I am a little worried that no major trade deals have been announced yet. I think there will likely be some trade deals announced this week in addition to the one with Vietnam last week, but will they be the big ones? I have my doubts. Basically, this lack of major trade deals exposes the stock market to the risk that the Trump administration will begin negotiation through the press and TV, reverting to April 2 tariffs as part of their negotiation process. If this reversion to the original tariffs is announced, that gives the Trump administration until August 1 to finalize any deals that are stuck in negotiations as of the July 9 deadline.

Like it or not, this is how Donald Trump negotiates. Remember what happened to Canada and their digital tax from 2 weeks ago? The Trump administration said it will take them one week to figure out the right tariff rate in Canada and (surprise, surprise), the digital tax was revoked, as it was clearly targeting American internet giants (Canada does not have any such giant tech companies). I am afraid we may run into more “Canada-digital-tax” types of situations in the next three weeks, prior to August 1. If we don’t get them, my worries will have been misguided, but again, we’ve seen no major trade deals, so far.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Furthermore, the tried-and-true RSI oscillator registered 75.57 on Friday. (If you want a good definition, you can ask Grok: “How is RSI calculated?”). This indicator is listed on both the top of the first chart and is listed by itself over the last five years (left axis) without the actual S&P 500 index in the second chart.

You will notice from the second chart that RSI rarely gets to 75 in any given year and it has been to 80 or so only three times in the last five years, so, yes, it is possible that we can become more extended, but the probability that the market zags lower in a normal correction is very high, in my opinion. That would be a normal pullback in what has been a strong rally of historic proportions in a short period of time.