I’m not sure there has been a time in my investing career where I have felt as compelled to use roller coaster imagery as the past six weeks! Somehow, it seems the most accurate depiction of what investors have been experiencing as of late. Fortunately, for the last several weeks – and most notably the past few days – we are enjoying an exhilarating climb higher (as opposed to a terrifying plummet!)

I looked back at a post I wrote on April 10th (just over a month ago – feels like a lot longer than that!), when markets seemed to be in a freefall and it was exceptionally hard to maintain conviction.

This bumpy part of the ride (ie: volatility and declining values) is the price we must pay to achieve the long term compounding of wealth. It never feels good at the time (never!) but up until now, the ride has always smoothed out eventually, and there is no use thinking this time will be different. No matter how much we dislike it and no matter how bumpy it gets, we must stay seated and we must stay on the ride….

So, buckle up. We’re not thru this particular bumpy part yet but the good news is none of us have gotten off yet – giving us the incredible opportunity and privilege to once again reach the calmer section of the ride.

When I wrote that, I had no idea when the latest decline would stop and when we’d reach a calmer section of the ride. Turns out, most US equity indexes fell ~20% from their highs before markets found stable footing. The recovery since then has been staggering, with most indices regaining all of the year to date losses (albeit they still remain down from the all time highs). Here’s the S&P 500 as an example

What’s happened in the past month (and the past few days) to cause this recovery? Here are a few thoughts

Tariffs Pauses

Much of this recent market volatility was caused by the stunning tariff proposals announced on “Liberation Day.” These tariffs levels far exceeded anyone’s expectations and included not only countries with whom we have large trade deficits (ie: China) but all countries on the globe. Markets reacted very negatively from the jump and continued to fall as fears of a US recession and a complete collapse of global trade took hold. There was extensive talk of the end of “US Exceptionalism” and a sudden bias for any non-US assets.

What changed? The Administration has announced a few deals and more importantly, issued several pauses related to the new tariffs (first with most of the world in mid April and now with China as of last weekend). It’s now expected by many (and telegraphed by the key players in the Administration) that more trade deals will be announced before the pauses end and the resulting tariffs will be far lower than once feared (likely in line with the initial market expectation of 10% or less). Whether there was a reaction to the market’s downward slide by the Administration or if this was part of the negotiating plan all along we’ll never know – but it’s clear that something led to a reversal in policy that markets appreciated.

Recession Avoided?

Markets have been very strong this week alone since the 90-day pause with China was announced. Part of that recovery is likely tied directly to the reduction in tariffs but another part of it may be the hope that this pivot will allow the US economy to avoid a recession if growth can now resume.

Retail sales for April were released this week and caused some concern, as they increased just 0.1% in the month, below the 0.2% consensus and well under March’s 1.7% gain.

It’s too soon to know if the chaos of the past six weeks and disruptions to supply chains will damage the US economy to the point of recession but for now, hope has been restored to some degree that it may be avoided (or minor in nature if it does still occur)

Offsides

Many investors (especially institutions) were caught off guard by the market rebound and remain quite bearish (albeit at a declining rate).

Many institutional investors have been short US equity markets (and moving to international equity exposure). When US markets rise rapidly (as they did over the weekend into Monday), this can drive more buying and higher prices as the short positions need to be covered. With sentiment still rather negative (especially at the institutional level), there could be ongoing support for US equities in the near term.

It’s interesting to note that throughout this pullback, money flows show that retail investors continued to “buy the dip” – and were proven right this time around.

Inflation Falling – Cover to Cut?

The Federal Reserve kept interest rates at 4.25%-4.50% last week, citing tariff uncertainty as the main reason to hold off (as tariffs may increase prices and/or reduce supply of goods, leading to a renewed level of inflation).

Two inflation reports published this week were encouraging – but keep in mind, they are backward looking to a pre-tariff world. April CPI print came in better than anticipated (2.31% year over year increase, lowest level since February 2021). A decline in food and airfare offset increases in energy and services for the month, as prices rose 0.2% since March.

And PPI (wholesale prices) also came in better than anticipated this week, falling 0.5% on the month when analysts had expected a 0.3% increase.

These tame inflation reports have renewed talk that the Fed may start to cut rates (perhaps as soon as their next meeting). The odds of a cut remain low in the futures market for the next Fed meeting but if inflation keeps falling and tariffs are rolled back permanently, rate cuts may be the next source of optimism for markets.

What Now?

It’s been a challenging 2025 for investors. If you “stayed on the ride” (ie: avoided pivoting from your long-term plan and stayed invested) – congrats! It is never easy to do – but you did it. Yet again.

As for what comes next, we are undoubtedly still living with uncertainty. That is always the case. It may seem more pronounced these days but it’s always there, hiding in plain sight. I wrote about some things you can consider during this period of relative calm here – but otherwise, all you can do is what you’ve always done.. breathe in, zoom out, and stay on the ride.

Onward we go,