The S&P 500 wrapped up the first half of 2025 at a new all-time high, overcoming a sharp downturn earlier in the year. After tumbling over 19% in April from its prior peak, the index staged a remarkable comeback and surged to fresh records within just two months.
Tariff Fears Fade, Market Regains Momentum
Investor concerns initially spiked following President Trump's announcement of sweeping tariffs on April 2 — dubbed "Liberation Day." The S&P 500 plunged more than 10% over the next three sessions, marking one of the steepest three-day declines since World War II.
However, markets quickly stabilized as the administration rolled out a series of tariff delays, helping ease economic fears and triggering a rally that erased the losses by early May.
Any Wall of Worry – AI Competition, Geopolitics and Growth Worries?
Despite the rebound, the road to new highs wasn’t smooth. Ongoing anxieties over Chinese competition in AI, uncertainty about how tariffs could affect corporate earnings, and rising geopolitical tensions in the Middle East can still act as headwinds. Yet, each time the market dipped, buyers jumped to scoop shares, underscoring a persistent bullish sentiment.
As major indexes hit new highs, institutional money managers faced increasing pressure to keep pace with the benchmark. Many funds are tied to the performance of indexes like the S&P 500, prompting them to re-enter the market aggressively after missing the initial rebound.
Retail Investors Fuel the Rebound
A significant contributor to the rally was renewed interest from retail investors. According to VandaTrack Research, individual investors poured a record $3 billion in net stock purchases on April 3 alone, the largest single-day inflow in the firm's data history going back to 2014, as quoted on Yahoo Finance.
Outlook Brightens for Economy and Earnings
Market analysts emphasize that the sustainability of the rally hinges on corporate profit outlooks and economic growth. Earlier in the year, both metrics had weakened. But as equities rebounded, so did earnings expectations and economic forecasts.
Estimates for the Tech and Finance sectors, the largest earnings contributors to the S&P 500 index, which account for more than 50% of all index earnings, have also been cut since the quarter began. But the revisions trend for the Tech sector has notably stabilized in recent weeks (read: S&P 500 Hits New Record Close: Why ETFs Could Gain More).
Rate Cuts Ahead?
The broader sentiment remains constructive over the next 6-12 months. As long as the economy holds steady and profit growth continues, stocks may still have room to run. Moreover, Trump is reportedly considering announcing Powell’s successor as early as September or October, much earlier than the typical three to four-month transition period. Powell’s current term doesn’t expire until May 2026.
If that happens, we may see someone elected as Fed Chair who favors rate cuts. And if rate cuts arrive earlier than expected, stocks will have another reason to rally (read: Trump Eyes Early Replacement for Powell? ETF Strategies to Play).
ETFs to Gain
Against this backdrop, investors can play exchange-traded funds likeiShares MSCI USA Quality Factor ETF QUAL, Vanguard S&P 500 ETF VOO, Invesco QQQ QQQ, Vanguard High Dividend Yield ETF VYM and ProShares S&P 500 Dividend Aristocrats ETF NOBL.
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Invesco QQQ (QQQ): ETF Research Reports ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports Vanguard S&P 500 ETF (VOO): ETF Research Reports iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports Vanguard High Dividend Yield ETF (VYM): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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