While markets have staged a remarkable comeback since their ‘Liberation Day’ losses, investor angst feels like it's at all-time highs and it’s easy to understand why. On a daily basis, global financial markets have been whipsawed by headlines on tariffs, trade negotiations, speculation on Jerome Powell’s job security, and more. Presently, there does not seem to be an immediate end in sight. 2025, especially post ‘Liberation Day’, will likely be remembered as a period of profoundly mixed market sentiment and potentially the beginning of a new era in global trade.
Through the first four months of the year, the S&P 500 is down 5%, after being down as much as -15% on April 8. Market heavyweights like the Magnificent Seven fared even worse, experiencing a drawdown of over 30% at their lows. Despite the rebound, investors have been hesitant to embrace risk assets. The U.S. 2-year treasury yield has fallen 64 basis points while the U.S. 10-year treasury yield has fallen 40 basis points. This has led to the 2/10 yield curve (the spread between the two treasury yields) to trade to its steepest level since February 2022. Clearly, macroeconomic risks are rising even as progress on the trade front comes in.
Along with the complex investment implications that could occur under various tariff scenarios, news headlines confirming and refuting trade deal rumors are likely to only pick up over coming months. S&P 500 realized volatility surged in April 2025, with the index averaging a 3.2% daily range—nearly two percentage points above the 1.3% April average dating back to 1983.
Meanwhile earnings could provide interim relief for investors. As of May 1, 65% of the S&P 500 have reported earnings, with 74.5% beating expectations. At the sector level, Health Care and Technology have led in the percentage of companies topping EPS estimates.
However, the S&P 500 is an index of globalized companies—many of which remain exposed to rising trade tensions. Mentions of “uncertainty” in S&P 500 company transcripts have surged in the ongoing 1Q’25 earnings season. Even fundamentally strong names like the Magnificent Seven are not immune to ongoing ambiguity. Their global supply chains, export reliance, and international customer bases leave them vulnerable should trade disputes escalate further.
Valuations have come off the boil over recent months and could ignite investor interest. The median TTM P/E multiple for the S&P 500 is now 21.5x, down from 23.9x. Meanwhile, the next twelve month (NTM) P/E multiple is 18.4x, down from 20.7x. While the market is not cheap historically speaking, we believe this could help fuel the “buy the dip” mindset, particularly if the market has already absorbed the bulk of the bad news.
In 2023, Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer popularized the term “fat and flat” to characterize market regimes and return prospects. While this didn’t play out as predicted in ‘23, we believe this concept may be applicable to the remainder of 2025. While there is a case for markets to retest the 2025 lows, we believe markets are likely to remain rangebound—trading “fat and flat”.
On one side of the ledger, investors are grappling with persistent uncertainty around trade and tariff policy. With the potential for escalating protectionism, especially tied to the U.S. presidential cycle and renewed rhetoric around China, global supply chains and corporate margins face pressure. These crosscurrents are muddying the outlook for risk assets and muting investor conviction.
At the same time, it's hard to get too bearish. Corporate earnings remain resilient—particularly among the Magnificent Seven, which continue to deliver robust profit growth and maintain operating leverage due to their size and scale. This earnings strength has kept retail sentiment positive, creating a floor for stocks even amid policy overhangs.
A tug-of-war between macro risk and micro strength, keeping markets in a broad, sideways grind rather than breaking out or breaking down. Despite the possibility of a volatile market without much forward progress, there are opportunities for investors across the risk spectrum. Investor anxiety is prevalent amid headline-driven volatility, but we see meaningful opportunities to capitalize on dislocations in the current market landscape.
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