U.S. Equities Weather Policy Uncertainty but Volatility Looms

Despite a rocky start to 2025—rife with fiscal concerns and growth worries—stocks have held up better than expected. The S&P 500 is down only 1.3% year-to-date, and the Nasdaq Composite off about 3%, while the economically sensitive Russell 2000 has slid 8.5% as investors shy away from cyclicals.

What's Driving the Calm?

• Trade Truce Boost: Donald Trump's decision to delay a 50% tariff on EU imports until July 9—after talks with Ursula von der Leyen—eased market fears.

• Economic Upside Surprises: “Soft data” indicators (PMIs, consumer confidence) have outperformed forecasts, offsetting recession jitters.

For a calendar of upcoming trade deadlines and economic releases, see the Economics Calendar API, which tracks key dates like tariff reviews and PMI prints.

Defensive Positioning as Volatility Brews

Wolfe Research remains cautious, citing:

• Fiscal Drag: Rising bond-market pressure on U.S. deficits may keep Treasury yields on edge.

• Economic Sensitivity: Stocks are likely to react sharply to any dips in data or spikes in long-term rates.

Until momentum in economic growth is clear, Wolfe advises staying underweight cyclical sectors and favoring quality companies with stable cash flows.

Market Resilience vs. Longer-Term Risks

While broad indices have held firm, the Russell 2000's underperformance highlights uneven leadership. Historical sector rotations during rate-shock episodes suggest this divergence may persist—review past patterns with the Sector Historical API to see how small-caps and cyclicals fared in similar environments.