In January, we wrote that 2025 is likely to offer investors a bumpier ride than 2023 or 2024 did. That has certainly been the case, with the new Presidential administration, AI developments from China, Federal Reserve policy, tariff turmoil, and violence in the Middle East all affecting the market to various extents. Through it all, the S&P 500 is up 3.58% for the year as of this writing. This is strong evidence for why we preach clients to stay invested, and it speaks to the resilience of American companies. Zooming in, the market was essentially flat from mid-May to mid-June, despite several potential negative catalysts such as escalation in the Israel-Iran conflict. Some commentators suggest the calm market in the face of apparent negative catalysts, especially after a strong rally from early April, suggests complacency amongst investors which warns of further downside. We strongly disagree; it suggests underlying strength in the market.
In our view, the narrative for the market is relatively simple if you allow it to be. We have written for years that US stocks are in a structural bull market with years left to run. This is driven by a positive demographic cycle and technological innovations such as cloud computing and artificial intelligence. Structural bull markets can still experience declines – the market has declined 20% 4 times since 2018 – but those declines are followed by new highs in relatively short order. Looking at a shorter time frame, the market experienced capitulation selling in April. Indiscriminate selling often signals the exhaustion of supply and marks market bottoms. Furthermore, several indicators suggested rare surges in demand in the market in April and May. This combination suggests that demand for stocks outweighs supply, which should push prices higher.
Underlying indicators continue to support the market’s advance heading into the 2nd half of the year. As previously written and discussed on our monthly market calls, market breadth and leadership confirm the market’s current uptrend. The economically sensitive Industrials sector continues to be the best performing sector this year, and important areas in Financials and Technology have recently broken out to new highs. This is not what you would expect to see if the market was concerned about imminent economic weakness. We expect the rest of the market to follow suit in the coming weeks and months. Meanwhile, the psychological impact of the April selloff continues to weigh on investors, which paradoxically provides upside fuel to the market. This continues to remind us of the relentless rally in immediate aftermath of the Covid crash in 2020.
In the bond market, inflation remains tame and yields remain attractive. We still think bonds remain an important diversifier for risk control and volatility reduction, as needed based on one’s financial circumstances.
At the beginning of the year, we wrote that our process suggested modest positive returns in 2025 with elevated volatility. Given the market action the past few months and the evolution of our objective indicators, our process now suggests that the market will exceed our initial expectations. On our July Mid-Month Market Call, we will discuss historical returns from new all-time highs, as we think it will be particularly relevant to investors in the 2nd half of the year.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
