The stock market has rallied sharply since President Donald Trump paused most reciprocal tariffs on April 9. The S&P 500 has gained nearly 20% over the period, which includes an impressive stretch of nine consecutive up days. The technology-heavy Nasdaq Composite has done even better, returning 24% since its early April lows.

The stock market's reaction to Trump's tariff pause took many by surprise.

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Stocks had sold off sharply in the days immediately after the president announced harsher-than-expected reciprocal tariffs, fueling fears of both inflation and recession.

The speed and depth of the decline set the stage perfectly, though, driving most stocks, including the major indexes, into oversold territory.

Hope that cooler heads would prevail and more manageable tariffs would emerge, thanks to negotiations, proved the perfect catalyst for gains.

Yet, most of the reasons for the stock market's decline remain. Now that the market has recouped the bulk of its losses since mid-February, further gains may be harder to come by, especially given one uncommon signal that recently flashed a warning.

A decisive bull market drove the S&P 500 to back-to-back 20%-plus returns in 2023 and 2024, including an impressive 24% gain last year.

Those gains were built largely on optimism that the Federal Reserve would pivot from hawkish to dovish monetary policy as it shifted focus from battling inflation to supporting employment.

Related: Morgan Stanley reveals mid-year recession, interest rate cut forecast

Investors were also encouraged by a tsunami of proposed spending on artificial intelligence. Companies flocked to develop AI chatbots and agentic-AI apps following the hugely successful launch of OpenAI’s ChatGPT in November 2022.

Unfortunately, those bullish tailwinds faded this year.

The Fed cut interest rates in September, November and December. But it has since paused additional interest rate cuts over worry that progress against inflation had stalled and that inflation could resurge because of the president's tariffs.

In April, the Consumer Price Index showed inflation at 2.3%, about in line with 2.4% last September but still above the Fed’s 2% target.

A sidelined Fed has removed some enthusiasm that lower rates would increase business investment and lower interest expenses on variable debt this year. This in turn has hindered corporate sales and earnings growth, which historically drive stock prices higher.