It’s only fair to give the stock market credit for hanging tough through the 2025 uncertainty storm. But it means the market is now taking credit in advance for a clearer and more favorable policy and economic picture developing from here. What does hanging tough look like? The S & P 500 index fought its way back to about flat after one of its worst-ever starts to a year through the first week of April. The index has also been hanging around the same patch of the field, spending all of the past two weeks and much of the last seven months in the range travelled on a single day, Nov. 6, 2024. The lines on the chart span the distance traveled in that initial one-session rally after Election Day. Since then, two quarters of much better than expected aggregate earnings have entered the books, offset by a confidence crash following the maximalist tariff proposals of April 2 and the abiding limbo state of the various overlapping pauses, deadlines and threats. Evidence that the market is implicitly assuming a fair degree of trade-war de-escalation could be seen in the market’s relatively modest response both to President Trump’s threat of a 50% tariff on imports from the EU just over a week ago, as well as its muted celebration when that measure was paused — or when a trade court ruled most of the global tariffs appear unlawful. Friday’s flutter of reports about stalled talks with China and the countries’ mutual accusations of bad faith drew a shrug from the tape, the S & P finishing flat to preserve a 1.9% weekly gain. Bespoke Investment Group on Friday reported that while the S & P 500 badly underperformed in March and April on days when trade headlines dominated the news, in May the market has largely ignored them. The reams of Wall Street strategy work attempting to handicap the trade-policy outcomes is coalescing around the 10% global baseline duties plus something higher for China and some targeted sectors, resulting in a blended rate somewhere above 15%. That’s a level of transactional friction in the global economy that is multiples higher than long-prevailing rates, yet less decisively scary than the punitive plan that crashed the market and created the early-April buying opportunity, at the moment of peak uncertainty. Why the stock market is holding near record Among the reasons stocks have held within a few percent of record highs as it digested the huge relief rally the past couple of weeks is the here-and-now economic readings have mostly been reassuring: Upward leakage in continuing unemployment claims but no spike in layoffs. Generally steady if uninspiring consumer activity, with mostly benign inflation data. A badly stuck housing market, but no more so than a few months ago. Calm restored in the Treasury market, yields settling back slightly to quiet the overexcited talk about fiscal fissures. All of the numbers carry a bold-faced asterisk for being either not fully reflective of tariff effects or helped temporarily by some pull-forward of demand to get ahead of tariffs. Here again, the market is supported by steady fundamentals, while also by extension pricing in an expectation that they will persist. Corporate-credit spreads have mostly round-tripped back to unconcerning levels, non-U.S. stocks are in solid uptrends and the industrial sector has returned to its former highs. Not a market clenched in anticipation of a significant air pocket in growth. It’s hard to ignore the other tailwind for the tape, the reassertion of the mega-cap growth cohort as relative leaders. Here’s the Magnificent Seven relative to the equal-weighted S & P 500. Back to the July 2024 crest, not quite up to the fourth-quarter exuberance peak. Someone in the business of diagramming head-and-shoulders topping patterns might have something to offer here, but for now it’s enough to say the market has again turned to the giants for support in a time of need. While the scolds who think index progress should come from the many over the few will lament this shift, the reality is the brute force of superior profit growth among the dominant digital platform companies is hard to resist. Mag 7, tech bid With Nvidia completing the reporting period for the megas, FactSet shows the group notched a 27% earnings jump from the year earlier, 11 percentage points head of forecasts, with the remainder of the S & P 500 growing a third as quickly. Even within the Mag7, it’s not the cleanest story. FactSet notes that consensus is projecting annual profit-growth rates will step down toward 10% over the next few quarters. I’ve pointed out here recently that the biggest earners, such as Microsoft and Alphabet , are spending so heavily on AI capacity that free-cash-flow growth is on hiatus this year. And the share-price action is somewhat spotty, too. Apple is a conspicuous laggard, the stock on the verge of breaking down below a former peak from almost two years ago. AAPL 5Y mountain Apple, 5 years Nvidia, meantime, has lost its post-earnings pop, the stock back to where it closed Wednesday just before what was taken as reassuring forward guidance. Alphabet has been kept in the penalty box, its valuation now at a significant discount to the broad market, as investors fear what AI might do to its core profit stream from search. Tesla has always been an uncomfortable fit in the Mag7, there only because of its massive market value and intermittent fits of headlong stock momentum. It does not have massive profitability derived from an pervasive asset-light network platform. Its earnings are set to be lower today than three years ago and forecasts have been slashed for this year and next. But the stock is useful as a gauge of investors’ collective willingness to believe in Elon Musk’s promised version of the future. Well more than half of its $1.1 trillion in market capitalization is attributable not to the auto and energy-storage business that produce all Tesla revenue, but to the perpetually “almost there” robotaxi and humanoid-robot ventures that get the faithful excited. While the market credits Tesla today with hundreds of billions in value for such unproven gambits, Alphabet’s $2 trillion market cap reflects very little credit for the more-advanced Waymo robotaxi division. The market likes a pure play and a good storyteller, not to say meme-spinner. For now, this current of lavishly capitalized belief is running only through narrow channels of the market, into Tesla and Palantir and CoreWeave , with tributaries into long-shot quantum-computing names with such lengthy timelines for judging success that traders choose not even to worry about it. This revival of the “transformative tech” bid — along with the resilience of hard macro data and glass-half-full take on how tariffs will interact with the economy — helps account for the tape’s ability to hold up during this in-between phase for trade policy and with the Federal Reserve resolutely in wait-and-see mode. It means that two months after universal panic over maximum uncertainty created a “Close your eyes and buy” moment, it’s now time to hold while keeping eyes wide open for how reality takes shape relative to fairly benign expectations.
Why the stock market continues to hold up in the face of uncertain trade policy
Jun 2, 2025
