The S&P 500 is 3% below its peak set in mid-February, when Trump launched a global trade war that began with tariffs on Canada and Mexico.

That marks a stunning rebound from last month as the index flirted with a bear market amid a nearly 20% selloff. Now, it’s around bull market territory again. From its closing low in early April, the S&P 500 is up almost 20%. And from its intraday low, it’s up more than 20%.

Meanwhile, the Dow Jones Industrial Average is 5% shy of its all-time high, the Nasdaq is off by 4.9%, and the small-cap Russell 2000 is 14% below its record.

After initially shocking markets with his high tariffs, including a 145% rate on China, the Trump administration has temporarily paused some of its most aggressive duties while engaging in talks with top trading partners.

On Friday, reports that the U.S. and European Union had begun serious negotiations gave markets a lift after rallying earlier this month on Trump’s de-escalation with China and a trade deal he made with Great Britain.

But Moody’s downgrade of the U.S. credit rating Friday evening was reminder of the threat that soaring debt levels pose over the longer term, especially if bond market traders jolt Treasury yields higher and sink the stock market.

For now, it may not slow down the market surge by much. Several Wall Street analysts said Moody’s merely pointed out what investors already knew about the rapidly deteriorating fiscal situation and followed similar moves from Fitch in 2023 and Standard & Poor’s in 2011.

Just before the debt downgrade, some market veterans were optimistic that stocks could continue notching more gains.

“I’m becoming more bullish. I call it the ‘Trump pivot,'” the Wharton School’s Jeremy Siegel told CNBC on Friday afternoon, referring to the tariff pause.

While he estimated stocks would be 10% higher without Trump’s tariffs, he added that the market still has “a lot of positive things going for it,” such as inflation readings that are better than feared and Trump’s dealmaking in the Middle East.

“I think this market could surprise everyone by hitting new highs,” Siegel predicted.

Fundstrat Global Advisors cofounder Tom Lee was similarly bullish, citing better tariff visibility as well as the prospect of tax cuts, deregulation, and more easing from the Federal Reserve in 2026.

At the same time, companies “survived a black swan event” and managed to beat earnings expectations in their recent reports, he added.

“And when you think about 2026 earnings having upside, I think there’s still upside for stocks,” he told CNBC on Friday afternoon.

Michael Brown, senior research strategist at Pepperstone, said Wednesday that U.S.-China talks last weekend that produced a major easing of trade tensions reinforced the idea that markets have passed the peak of tariff uncertainty.

“Add it all together, sprinkle on top apparent progress on the House GOP tax cuts bill, increasing faith that the debt ceiling will be resolved in timely fashion, and a mindset where (at least for now) investors will look through bad data as being skewed by tariffs that are no longer in place, and you have a very potent cocktail indeed to send stocks further higher,” he wrote in a note. “The 6,000 handle will be the first test for [the S&P 500], and fresh record highs certainly can’t be ruled out shortly after.”

To be sure, there are still skeptics on Wall Street, warning that the stock rally is fragile.

While Trump has paused his biggest tariffs, they are unlikely to go away completely, and administration officials have signaled that 10% is a baseline—must higher than historic levels. And later in the year, economic data and corporate earnings will show more signs that tariffs are having an impact.

Earnings momentum will fade, and even the Magnificent 7 tech giants will see revenue growth slow, according to Lisa Shalett, chief investment officer of Morgan Stanley’s wealth management division.

“I think we’re going to stall out here,” she told Bloomberg on Friday. “It’s hard to justify the numbers.”