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Jun 25, 2025 .
A Roller Coaster Start to 2025 — Time to Regroup for the Second Half
Let’s review. The market has shown surprising resilience, weathering the shift from early hopes of accelerated growth—driven by talk of deregulation and fiscal stimulus under the new White House administration—to fears that the president’s proposed triple-digit tariffs could trigger surging inflation and weak economic growth, raising concerns about the dreaded ‘S’ word: stagflation.
“Knowledge speaks, but wisdom listens,”
said legendary guitarist Jimi Hendrix—a fitting reminder as we reflect on the wild ride that has been the first half of 2025. It turns out we were quite serious when we discussed the likely virulent swings in policy rhetoric out of Washington and the associated turbulence in stock price activity.
That’s exactly what investors have experienced as we approach the close of 2025’s first six months.
The Market’s Tariff Time-Out
The subsequent tariff time-out (TTO), announced by the president on April 8, halted a market decline that had reached nearly 20% and stopped the swift surge in Treasury rates that was beginning to intimidate even the bravest stock and bond investors. In fact, the TTO inspired a rally of nearly 12% from April 8th through April 30 , effectively erasing the significant paper losses from the month’s early days. As a result, April ended virtually flat, despite the market’s roller-coaster ride.
Apparently, U.S. Treasury Secretary Scott Bessent—a longtime expert in the fixed-income markets—convinced the President that financial markets could unravel in dangerous fashion if he didn’t quickly pause the planned escalation of tariff duties on key foreign trading partners. At least, that’s what the sharp post–“liberation day” decline in stock and bond prices appeared to signal, to both the head of the Treasury and close market followers in general.
What the Data Shows
These market concerns were reflected across nearly all confidence-related economic and investor surveys, commonly referred to as soft data. Notably, there were significant declines in consumer and CEO confidence, small business optimism, and investor sentiment. These metrics plummeted as the erratic delivery of tariff threats continued in unpredictable waves. As a result, the S&P 500’s forward price-to-earnings ratio fell sharply from a peak of about 22.5 times in mid-February to 18 times earnings during the spring “liberation day” announcement period2. P/E levels are largely driven by market psychology: when confidence is high, they rise and soar; when it’s diminished, they recede, sometimes meaningfully.
We believe it is critically important to note that, contrary to the weak trends in the soft data, the hard data—key items such as real GDP growth, earnings, employment, consumer spending and business investment— have for the most part held up quite well. That’s what supports our continued constructive stance on the market.
The key questions now are: Will the concerning drop in confidence and related stagflation fears eventually turn into reality if the disputes are not resolved soon? Or, is our economy strong enough—and an adequate number of other positive offsets surface (e.g., proposed tax cuts, possible fed rate cuts, etc.)—to absorb these larger-than anticipated tariff policy-driven headwinds?
Some Improvement in Trend Supports Rally
More recent news flow suggests that the temporary pause on tariffs has helped ease consumer and investor skepticism. The TTO-driven rally that began in April extended into May, with the S&P 500 rising another 6.3% during the month known for blooming flowers.
This brings the cumulative S&P 500 advance from the April 8 low to about 19%, nudging the market back into slightly positive territory for the year. On Dec. 31, 2024, the S&P 500 closed at 5,881. As of May 31, 2025, it sits at 5,911.
