The S&P 500 Index cruised well above 6,100 this week, marking its highest level since February.BRYAN R. SMITH/Getty Images
Some investors may have enjoyed watching the initial response to U.S. President Donald Trump’s erratic policies a few months ago, when the tanking the U.S. stock market delivered a clear thumbs down to tariffs.
But the schadenfreude is fading fast: U.S. stocks are back, and in a big way.
The Standard & Poor’s 500 Index cruised well above 6,100 this week, marking its highest level since February. It flirted with a record high on Thursday, and is now up 27.1 per cent from its recent low in April.
Perhaps most importantly, the U.S. blue-chip benchmark has led the world over the past month, outperforming the equity indexes of Germany, Britain, Japan and Canada by a convincing margin.
U.S. exceptionalism – the idea that the country is special, owing in part to its large influence and economic heft – is making a comeback.
Yay?
The stock market’s impressive rebound over the past three months is surprising, but it likely reflects a better outlook for the second half of the year.
It suggests that investors no longer expect a recession and are growing convinced that Mr. Trump has made a policy pivot after delaying some tariffs, according to Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.
First-quarter corporate earnings held up better than expected and are on track to rise 13.7 per cent from the same period last year, according to data from LSEG I/B/E/S.
And a pickup in inflation has been noticeably absent, as of May, despite concerns earlier in the year that Mr. Trump’s initial polices would stoke price increases.
If inflation remains low through the summer, the Federal Reserve might have confidence to cut interest rates, potentially fuelling the bull market as trade tensions subside.
“Of course, trade policy is currently in the hands of the U.S. President, and therefore subject to his whims,” Herbert de Barochez, senior markets economist at Capital Economics, said in a note.
Fed expected to keep interest rates steady as tariff risks outweigh inflation data
Tony Keller: The market is irrationally exuberant about Trump’s tariff retreat
Nonetheless, Mr. de Barochez has considerable faith in what could be the biggest factor in favour of U.S. stocks right now: Markets act as a guardrail to Mr. Trump. After all, it was the rout in U.S. Treasuries, Mr. de Barochez said, that prompted the President to roll back some of his harshest tariffs.
Don’t worry, schadenfreuders, there’s still plenty of grim U.S. economic news to gloat about, and it could weigh on stocks that look vulnerable after approaching record highs.
The U.S. Bureau of Economic Analysis this week estimated that the economy contracted by 0.5 per cent in the first quarter, after inflation, which was worse than the previous estimate of a 0.2-per-cent contraction.
More deportations, perhaps bringing the total to 1 per cent of the U.S. labour force, could knock another 0.9 per cent off U.S. gross domestic product, according to Michel Nies, an economist at Citigroup.
Consumer confidence remains volatile, slipping unexpectedly in June. The expectations part of the reading fell to a level that is historically consistent with a recession.
And Mr. Trump is reportedly mulling the announcement of the next Federal Reserve chair as early as this summer, according to The Wall Street Journal.
The move could undermine the authority of the current chair, Jerome Powell, well before his term expires next May and challenge the long-held political independence of the central bank.
Are investors blithely ignoring these risks?
Maybe. But what’s more likely is that they’re betting that the traditional versatility of U.S. companies will get them through the current bout of economic uncertainty.
After a successful NATO meeting this week, they can see that Europe is learning how to deal with Mr. Trump’s worst impulses of berating allies and embracing dictators, and has managed to bring the President a little closer to their side.
And investors may be recognizing that betting on U.S. stocks has been a shrewd contrarian move over the past few months, and the rally could have further room to run as the S&P 500 closes the performance gap with other major indexes.
For all the excitement over the U.S. recovery, the country’s stocks are lagging the rest of the world by a wide margin. While Canada’s S&P/TSX Composite Index TXCX-I is up 8 per cent so far in 2025 and Germany’s DAX index is up nearly 19 per cent, the S&P 500 is up by all of 4.4 per cent – making the U.S. market stand out as a laggard.
Investing in U.S. stocks has always come with risk. But if the past few months has demonstrated anything, it’s that ignoring them altogether is far riskier.