The headlines are full of tariff talk again, but markets have continued to march higher anyways. Here are the real forces we think are at work behind the record highs:
Catalyst 1: Strong Economic Growth
The economy surprised to the upside with over 3% GDP growth last quarter, driven by strong consumer spending and resilient corporate earnings. Even with higher costs from tariffs, companies are still finding ways to grow profits.
Catalyst 2: The AI Boom
AI continues to be the biggest investment theme, fueling massive demand for data centers, chips, and related infrastructure. Technology remains the clear growth engine pulling markets forward.
Catalyst 3: Tariffs Priced In
Markets have learned to live with tariffs. Many companies front-loaded imports, shifted supply chains, or passed through modest price increases, so the actual drag has been far less than the headlines suggest.
Catalyst 4: Fed Rate Cut Expectations
With softer inflation and cooling jobs data, the Fed has signaled it’s ready to cut rates. The biggest risk is the balancing act between inflation, which has ticked back up slightly, and a weakening job market, leaving the Fed with a difficult decision on how aggressively to ease going forward.
Catalyst 5: Deal Activity & Confidence
Mergers, acquisitions, and corporate buybacks are picking up again. When CEOs are willing to put cash to work, it signals confidence in future growth.
Key Factors Summarized
| Factor | Tailwind Effects |
|---|---|
| Strong GDP & earnings | Macro foundation remains healthy |
| AI-led tech growth | Driving leadership and momentum |
| Tariff adjustments | Costs absorbed with minimal damage |
| Fed easing expectations | Lower rates boost confidence, but with risk of policy missteps |
| M&A & corporate activity | Reinforces long-term optimism |
Our Takeaway
The pace of the rebound from April lows has reinforced an important lesson in market history: it’s nearly impossible to time markets. Deeper and more prolonged downturns usually come alongside recessions, while market drops not tied to recessions tend to see sharp, V-shaped recoveries, just as we saw this year and during the COVID decline. The 2022 correction stands apart as a longer, more grinding drop that reflected weakening economic data and surging inflation.
This is exactly why we build portfolios that align with our clients’ short- and long-term goals, so they can weather the ups and downs without being forced to make decisions in the heat of volatility. Staying disciplined keeps you in position to benefit from recoveries, while ensuring your financial plan remains on track no matter what the markets throw our way.
It’s also worth remembering that secular bull markets can last far longer than most investors expect. The last two stretched well beyond the length of the current run that began after the financial crisis, leaving open the very real possibility that markets could continue marching higher for years, especially on the back of the powerful themes we highlighted above. Below is a great research piece from Fidelity, that looks at past secular bull markets compared to the current market as of the April lows this year.
