The Corrected Correction

Why the stock market has uncorrected... at least for now

Friday, May 16, 2025

The stock market’s latest rebound is a good reminder that moments of turbulence often open the door to opportunity. While stocks could take a breather after their strong climb since the April 8 low—especially if trade deals and tariff cuts take longer than anticipated—the message is simple: riding out the rough patches usually pays off in the long run.

Here’s what’s been fueling the recovery:

1. Trade hopes on the rise.

There’s growing optimism around global trade. The White House has signaled progress with several nations, including India, South Korea, Japan, and the U.K. President Trump has hinted that China might lower tariffs, as Treasury Secretary Scott Bessent headed to Switzerland this week for talks with top Chinese officials.

2. Solid economic footing.

The U.S. economy is still showing strength. April saw 177,000 new jobs, keeping unemployment low at 4.2%. Consumer spending rose nearly 2% (adjusted for inflation), and business investment jumped by more than 20% on an annualized basis. Yes, GDP slipped slightly by 0.3%—mostly due to a spike in pre-tariff imports—but signs point to a rebound in the second quarter.

Risks like stagflation still linger as growth slows and trade tensions persist.

3. Inflation is cooling—but slowly.

Progress has been delayed, in part due to tariffs, but the trend remains downward. Both we and the market expect inflation to ease back toward the Fed’s 2% goal by 2026. Cheaper oil and lower Treasury yields since January are helping too.

4. Corporate earnings are beating expectations.

First-quarter earnings for S&P 500 companies are shaping up to be more than 13% higher than last year—about double what analysts expected at the start of the season. Big tech players are sticking to, and even increasing, their investment plans, especially around AI, with capital spending on track to rise over 30% in 2025.

Looking forward, it wouldn’t be surprising to see markets take a short pause after such a quick rally. Risks like stagflation still linger as growth slows and trade tensions persist. But the fundamentals—both in the economy and corporate performance—remain strong.

Our advice? Stick with your long-term plan. Keep your mix of stocks and bonds aligned with your goals. There may be better buying opportunities ahead, especially with trade uncertainty still clouding the outlook.

In the end, markets have shown time and again that they bounce back. Staying disciplined through the ups and downs is what long-term success is built on; and to that end, we work.

Have a great weekend!

Jim Pannell, Managing Principal

(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.)