By Ian Salisbury

The stock market saw significant gains on Tuesday, offering battered investors glimmers of hope. They may want to wait for the market to retest its April 8 low before committing to the rally.

The S&P 500 was up about 1.6% on Tuesday to 5262 points in early trading. The gains came as a relief following Monday's big selloff, which were prompted by President Donald Trump firing off angry Truth Social posts directed at Federal Reserve Chair Jerome Powell. It was a move many interpreted as an attempt to shift blame for a weak U.S. economic picture.

Still, stocks may have further to fall before a relief rally begins in earnest, according to recent notes from two prominent market watchers, Yardeni and DataTrek. Despite Monday's lackluster performance, the S&P 500 opened on Tuesday about 4.5% above its closing low of 4983 points set April 8.

There's a good chance the market will hit that level again before all is said and done, argues Yardeni. "The S&P 500 remains in correction territory with a 16% drop since February 19. It is likely to retest its April 8 low and probably find support there," the firm wrote Monday. "If so, then the market may be forming a bottom."

DataTrek makes a similar argument, pointing out that "market lore" holds that during a crisis of confidence the stock market will typically "retest" recent lows before beginning to rally in earnest.

DataTrek co-founder Nicholas Colas attributes this conventional wisdom to the market's behavior following the notorious October 1987 stock market crash. The market initially rebounded, but then moved sideways for several weeks until December 1987 when it retouched the October low -- before finding its footing and entering a new rally.

Colas concedes things don't always play out the same way, noting that bear markets in 2002, 2009, and 2020 ended without following the 1987 pattern. All the same, there is little reason for investors to assume they are out of the woods in 2025, he argues.

While Trump has backed away from his most extreme trade proposals, the current plan for 10% across-the-board tariffs is significant. The Trump administration also doesn't seem close to settling its differences with China, which it has singled out for a larger 145% levy on many goods.

On Monday, China warned countries not to strike trade deals with the U.S. that hurt China -- or they could face retaliation.

"The wide range of uncertainties swirling through capital markets make a retest of the April 8th lows very likely and important to market psychology," writes Colas. "U.S. large caps will be much more likely to hold if the administration calms its rhetoric on trade or can show some progress on negotiations, restoring confidence that policy is becoming more predictable."

Write to Ian Salisbury at ian.salisbury@barrons.com

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April 22, 2025 12:17 ET (16:17 GMT)

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