Investors face a wall of concerns right now: fresh tariffs and a ballooning federal deficit, headline-grabbing immigration raids, and—most recently—a hot war in the Middle East after Israel struck Iran. Confidence surveys are sagging, earnings are expected to dip and analysts warn of slower growth.
Yet Wall Street is rising anyway.
Even after Tuesday’s pullback, the S&P 500 sits less than 3 percent shy of its all-time high, while the bouts of volatility that rattled markets in April have faded.
Markets bottomed on April 8, then rocketed higher the very next day when the White House postponed hefty import levies until July. Every subsequent 2 percent-plus surge has coincided with some form of tariff climb-down or truce.
“Aggressive tariffs dug the hole; pausing them helped dig us back out,” says Liz Ann Sonders of Charles Schwab.
Inflation still tame.
Despite predictions, tariff costs have yet to flow through to consumer-price data in a big way, easing fears of a Fed crackdown.
Economic resilience.
Deportations and hiring freezes worry employers, but hard data still show a sturdy labor market.
Even the shock from Israel’s strike on Iran fizzled quickly: the S&P 500 shed just 0.8 percent on Tuesday after President Trump demanded Tehran’s unconditional surrender.
Mega-cap tech continues to dominate. Strip out the “Magnificent Seven”—Microsoft, Apple, Amazon, Alphabet, Meta, Nvidia and Tesla—and the April-to-June rebound is roughly half as strong, according to S&P Dow Jones Indices.
An equal-weight version of the S&P 500 still sits nearly 5 percent below its own record. “The benchmark no longer mirrors the ‘average stock’—it mirrors a handful of giants,” notes Peter Tchir at Academy Securities.
The VIX (30-day volatility gauge) has calmed, but skew—a measure of demand for deep out-of-the-money put options—resides in the 96th percentile of its historical range. Translation: investors are quietly paying up for crash protection later this year.
Bond-market jitters.
Yields remain elevated as Washington’s $35 trillion debt worries fixed-income traders. Ralph Axel of Bank of America calls it a “split market: calm surface, big cross-currents underneath.”
Sandy Villere of Villere & Co. doubts the calm will last: “The second half of 2025 could prove much tougher for equities.”
Tariff-driven inflation hasn’t shown up yet, but a sustained spike in crude could change that calculus. Brent rallied roughly 10 percent after Israel’s escalation, reaching levels last seen a year ago. Any disruption in Gulf shipping lanes would add fuel to price pressures, potentially handcuffing a rate-cut-minded Federal Reserve.
“The tailwind of falling energy prices could flip into a headwind,” warns Katie Nixon, CIO at Northern Trust Wealth Management.
The headline index paints a picture of near-normality: stocks within reach of records, volatility subdued. Look deeper, and the market’s foundation rests on a narrow set of tech behemoths, while derivatives and debt markets hedge against unpleasant surprises. Investors may still enjoy the rally—but they’re keeping one hand on the emergency brake.
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