Despite a challenging start to 2025, characterized by fiscal concerns and economic growth apprehension, stock markets have surprisingly remained resilient. The S&P 500 is down just 1.3% year-to-date, while the Nasdaq Composite shows a decline of around 3%. Conversely, the Russell 2000 has fallen 8.5% as investors turn cautious on cyclical stocks.

Factors Contributing to Current Stability

• Trade Relief: The announcement of the 50% tariff delay on EU imports by Trump has eased market anxieties, following talks with Ursula von der Leyen.
• Surprising Economic Data: Recent soft data, such as PMIs and consumer confidence metrics, have exceeded expectations, alleviating recession worries.

An upcoming calendar of trade deadlines and economic reports is available to track essential events, including tariff reviews and PMI announcements.

Preparedness for Potential Volatility

Wolfe Research offers a cautious outlook, pointing to:

• Fiscal Pressures: Rising bond market stressors regarding U.S. fiscal deficits may create upward pressure on Treasury yields.
• Economic Sensitivity: Stocks could react dramatically to erratic data or fluctuations in long-term interest rates.

Until clear growth momentum emerges, Wolfe advises reducing exposure to cyclical sectors while focusing on companies with reliable cash flows.

Market Strength vs. Long-Term Challenges

While major indices show resilience, the underperformance of the Russell 2000 highlights a discrepancy in market leadership. Historical sector rotations during periods of rate shocks suggest this pattern may persist, a strategy that can be analyzed with Entreprenerdly’s Sector Historical API.