The stock market has shown remarkable resilience in the face of uncertain trade policies and economic concerns. Despite a rocky start to the year, the S&P 500 index has fought its way back to flat and has been holding steady in recent months. Corporate earnings have been better than expected, helping to offset the confidence crash following maximalist tariff proposals in April.
The market’s muted response to recent trade threats and court rulings suggests that investors are implicitly assuming a fair degree of trade-war de-escalation. Wall Street analysts are coalescing around a baseline of 10% global duties plus higher rates for China and some targeted sectors, resulting in a blended rate above 15%. While this represents a significant increase in global economic friction, it is less daunting than the punitive plan that crashed the market in early April.
The market has been supported by reassuring economic readings, including steady consumer activity, benign inflation data, and stability in the Treasury market. However, these numbers come with an asterisk for not fully reflecting tariff effects or temporary demand pull-forward. The reassertion of mega-cap growth stocks as relative leaders has also been a factor in the market’s resilience.
Nvidia, for example, reported a 27% earnings jump, well ahead of forecasts.
Market resilience amid tariffs impact
However, there are mixed stories within this group, with Apple lagging and Tesla remaining a wild card.
Marta Norton, chief investment strategist at Empower, believes that the market is stepping back from the brink of tariff volatility. However, she cautions that the market seems focused on positive outcomes without really pricing in what could go wrong with tariffs or other areas. Norton notes that despite some softening in GDP due to an import surge, inflation is stabilizing more than expected, and the labor market remains resilient.
She sees the “Magnificent Seven” stocks (excluding Tesla) as attractive due to their strong fundamentals and reasonable valuations. While valuations overseas remain attractive, Norton is cautious about growth prospects outside the US. She advises limiting exposure to international markets.
The bulls are currently in charge of the market, but a major test awaits with Nvidia’s earnings report. The high level of bearishness among economists and pundits tends to be bullish from a contrarian perspective, as it indicates limited risk exposure and plenty of cash for buying. Overall, the market has shown resilience despite ongoing uncertainties, but caution is advised.
Investors may find opportunities in the “Magnificent Seven” stocks and selectively in international markets, while recognizing the broader economic trends and potential risks.
