Investing.com -- Despite a turbulent start to 2025 marked by policy uncertainty and renewed concern over the U.S. growth outlook, equity markets have shown surprising resilience in recent weeks.
The S&P 500 is down just 1.3% year-to-date, while the NASDAQ Composite is down about 3%. In contrast, the more economically sensitive Russell 2000 has dropped 8.5%, reflecting investor caution toward cyclical exposure.
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Wolfe Research analysts attribute the market’s recent relative stability to “positive news on the trade front and better-than-expected soft data economic surprises,” which have helped offset deepening fears of a recession that surfaced only weeks ago.
However, concerns are mounting around the U.S. fiscal trajectory. As bond vigilantes push back against unsustainable federal deficits, Wolfe expects volatility to persist through the summer.
“We continue to remain defensively positioned as stocks are likely to be hypersensitive to economic data and moves in long-term interest rates over the coming months,” the analysts wrote.
There is some early optimism, as sentiment indicators have improved slightly. Still, the analysts remains cautious.
“While we’re encouraged by the slight improvement in sentiment surveys, our sense is we’ll need to see a reacceleration in the economy before shifting to more cyclical positioning,” they said in a note.
Markets were also buoyed after Donald Trump postponed a planned 50% tariff on EU imports until July 9, following a call with European Commission President Ursula von der Leyen.
“She said she wants to get down to serious negotiation,” Trump said Sunday. “July 9 would be the day… I agreed to do that.”
In response to these news, STOXX 600 index rose 1% while the German DAX added as much as 1.6%.
U.S. equity markets are closed Monday in observance of Memorial Day. Trading will resume Tuesday, following a week marked by geopolitical headlines, fiscal concerns, and a solid rebound in risk sentiment.
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