From Turmoil to Record Highs.
It is easy to tell a simple story about the markets at the moment, but it would be wrong. In the parable of the blind men attempting to describe an elephant, one likens it to a snake after touching its trunk, while another describes it as a tree after feeling its leg. A third, touching its tusk, says it’s like a spear. Given their limited perception, none can understand the entirety of the great animal. Although 2025 is only about half over, the start of the year might seem like a lifetime ago, given the twists and turns of the past six-and-a-half months. Market participants have endured three distinct market environments so far in 2025 which taken on their own resemble the aforementioned parable. The first, which began with the post-election euphoria and ran through mid-February, saw the S&P 500 return 5.4% as investors cheered what they hoped would be an era of deregulation and growth-friendly policies for businesses after the Republican sweep in November. Small-caps and cyclical sectors like consumer discretionary and financials shone. That narrative quickly fell apart in February through mid- April. Capricious policymaking from the White House led to a near bear market decline in the S&P 500 as investors worried that a recession was just around the corner. Previous winners–cyclical sectors and tech, from earlier in 2024–fell. Defensive areas like utilities and staples were suddenly back in vogue. All that changed again from mid-April. Since then, the S&P 500 has ripped higher with the market hopeful that more favourable trade deals will be struck and that the productivity gains from artificial intelligence will spur long-term growth in profits.
