At the start of the year, investment sentiment across the equity markets, particularly in the US, which is by far the largest capital market, was very positive as a result of expectations of favourable policies by the incoming administration, including tax cuts and deregulation, which were expected to support further economic growth and corporate profits.
Donald Trump’s victory in the US presidential election in early November 2024, along with the Republican Party winning the majority in both houses of Congress, supported the market’s momentum at the time.
The S&P 500 index registered gains of over 20% in 2023 and 2024. Towards the end of 2024, most investment banks predicted that the index would continue its positive streak in 2025, with expectations of another 10% increase to about 6,600 points by the end of 2025.
The index registered a positive start to the year and peaked at a new record of 6,144.15 points on February 19, 2025. However, as the US president provided indications of harsh tariffs, and the US fiscal position showed signs of deterioration, the index ended in negative territory in February and March.
Furthermore, following the announcement during ‘Liberation Day’ on April 2 of the new tariff policy, the index plunged to the lowest level of the year of 4,982.77 points by April 8. This represented a decline of nearly 19% from the high of 6,144.15 points only a few weeks earlier on February 19.
Nonetheless, despite multiple sources of uncertainty arising from both the macro-economic environment as well as the multiple geopolitical conflicts, most international equity markets have been performing remarkably well since then, and the index is once again within proximity of a new all-time high.
Indeed, during the first week of June, the S&P 500 index surpassed the 6,000-point level once again and continued to move higher in the first part of this week, registering a recovery of over 21% from the low of April 8.
The V-shaped recovery in the equity market, which is similar to that experienced at the start of COVID-19 pandemic in the first half of 2020, is largely attributed to expectations that trade tensions between the US and China will eventually ease.
It is evident that both economies cannot maintain harsh tariffs because China is highly dependent on manufacturing and exports, while the US is being challenged by a high budget deficit, record debt levels and interest costs on the swelling debt levels that cannot be sustained if the economy slows.
Furthermore, the US labour market remained particularly resilient, supporting the belief that corporate activity remained strong even during the uncertainties caused by the multiple tariff policy changes during the month of April.
It is also pertinent to note that although the S&P 500 index stands close to February’s all-time high, the underlying performance of the constituents shows quite a divergence.
In fact, nearly 300 of the 500 constituents are still below their mid-February level, with UnitedHealth Group Inc being the worst performer of the period as its share price lost 40%. Consumer discretionary companies Lululemon Athletica Inc., Norwegian Cruise Line Holdings Ltd and Caesars Entertainment Inc all lost more than 30% in market value since February.
Meanwhile, among the ‘Magnificent 7’ stocks, Apple Inc. is also still 19% below its value on February 19, while Amazon Inc. and Alphabet Inc. are nearly 5% below their mid-February levels after each recovering by over 20% from the lows of early April.
By contrast, Microsoft Corporation, which currently ranks as the world’s largest company by market capitalisation with a value of $3.56 trillion, increased by over 15% since February 19 to a fresh all-time high.
Likewise, NVIDIA Corporation stands 4% above its February 19 level after it staged a remarkable recovery of 50% from the lows of early April. The market cap of NVIDIA of $3.53 trillion is only marginally below that of Microsoft.
The information technology sector was the clear driver of the recovery, with other firms in the sector, such as Broadcom Inc, Oracle Corporation and Palantir Technologies Inc all registering double-digit growth in their share prices since February – a recovery of over 50% since April 8.
Despite the outstanding recovery of the S&P 500 index over the past two months, it is worth highlighting that between February 19 and mid-June, the US dollar weakened by around 10% when compared to the euro. As such, although the index has virtually fully recovered in US dollar terms, those investors, who view their holdings in the US equity market in a portfolio based in euro, are still seeing a decline of circa 10%. At times, currency movements can alter the performance of investment portfolios in meaningful ways.
Overall, the highly volatile performance seen in recent months is another clear reminder of the famous investing adage: “Time in the market beats timing the market.”
While it is difficult to predict what will happen across financial markets within days or weeks, being invested for the long term in a diversified portfolio has proven to provide positive returns over time.
Jonathan Falzon is a research analyst at Rizzo, Farrugia & Co (Stockbrokers) Ltd.
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