The S&P 500 has recovered nearly all its losses for the year, which is impressive given the turbulence we’ve navigated in 2025. But what might surprise you is that I believe the market is actually in a better position today than it was back on February 18th, when stocks hit their all-time highs.
Why?
Because today, we have greater clarity on the key risks that were clouding the outlook earlier in the year. Tariff uncertainty has largely lifted, the credit markets are signaling stability, and despite the usual chatter about an impending recession, the data—and the markets—are telling a more resilient story.
Let me break down why I think the setup for markets looks better now than it did at the highs.
Tariff Fog Has Cleared
Back in February, markets were still guessing how the tariff battles would play out. Today? We have more clarity on the tariff front. Like them or not, at least we know the rules of the game—and markets love clarity.
UK-US Trade Deal: The UK and US recently signed a trade agreement that reduces tariffs on British car exports from 27.5% to 10% for a quota of 100,000 vehicles annually. Additionally, tariffs on UK steel and aluminium have been lifted, provided British companies meet specific US security conditions related to supply chain transparency and ownership structures.
US-China Tariff Pause: Over the past weekend, the US and China agreed to a 90-day pause in their tariff war. Under this agreement, US duties on Chinese goods will be lowered from 145% to 30%, while China's retaliatory tariffs on US imports will be reduced from 125% to 10%. This truce has momentarily boosted global stock markets and alleviated fears of supply shortages.
Markets See Past the Slowdown
Yes, there are still bumps ahead—supply chain disruptions, container backlogs—but the credit markets aren’t flashing recession warnings. High-yield spreads, which normally widen to 500–700 basis points during scary times, are sitting at a calm 357 bps. That tells us investors expect the economy to power through.
Sentiment Is Still Too Bearish
Despite all this, the mood out there is still surprisingly negative. Many investors are still calling for a recession. But with the so-called "Trump put" alive and well, I think these skeptics might be forced to rethink.
Inflation Data: Better Than Headlines Suggest
We got some important inflation data this week:
- April Core CPI came in at 0.24%—a pleasant surprise vs. 0.27% expected.
- Year-over-year inflation is now at 2.3%, the lowest since 2021.
- Interestingly, shelter and auto insurance are still doing the heavy lifting for inflation. Without them, inflation would be running below trend.
- By the European Central Bank’s measure, US inflation is actually below 2%—and the Fed would already be cutting.
The Bottom Line
The market has battled through a long list of challenges this year, but the backdrop today is far more constructive than many investors give it credit for. We now have tariff clarity, inflation trends are cooling, and credit markets are calm. And let’s not forget—companies have already proven they can survive some of the toughest tests in recent memory, including the COVID-19 shutdowns, the inflation surge of 2022, and the fastest rate hikes in history. If they could navigate those storms, the current headwinds look far less daunting. While the headlines still sound cautious, we believe the opportunity lies in areas that have been washed out and overlooked. Staying invested through these periods of skepticism often sets the stage for the strongest long-term gains.