The stock market is rather calm but can’t seem to relax. In a noisy and fast-shifting news environment, stocks were quietly flattish last week from point to point, even after Friday’s almost 1% drop, which extends a sideways three-month range during which the S & P 500 has traded no more than 3% above or below its closing level from the day after the U.S. election. The index has been sticky near the 6,000 level, caught between the opposing currents of a deeply split market, in which stocks and sectors are moving their own way rather than as a bloc. Helps explain why the CBOE S & P 500 Volatility Index (VIX) has been testing its recent floor near 15 in recent weeks. Is this action best understood as resilience, fatigue or confusion? A bit of each, most likely. The market action suggests investors are comforted by a sturdy economic starting point and the consensus will not easily surrender their faith in a “growth-friendly” policy mix to come. Yet day to day, the many-forked path of policy-setting involving tariffs, immigration crackdowns, executive-branch program curbs and, eventually, a tax-and-spending package has sapped market confidence in an imminent economic acceleration. Many of the textbook “Trump trades” pricing in a strong growth impulse driving a higher-nominal-growth economy have largely unwound. The small-cap Russell 2000 has rolled back to mid-October levels. And as shown here, the beloved industrial sector has also slid back relative to the broader market. The selective nature of the tape is also visible in the waning proportion of large stocks that remain in a technical uptrend. This chart from Strategas Research shows the percentage of such stocks slipped just below 60%, lowest in more than a year. It’s a testament to the market’s recent knack for clockwork rotations and the constant aggression of small retail traders ( detailed here last week ) that the index has stayed within a couple of percent of record highs even as broad momentum is lacking and so many individual stocks consolidate. It’s tough to deny that the clench-and-release of tariff threats is the proximate mover of tactical trading flows and the public mood. The S & P 500 low for last week came less than an hour after Monday’s opening bell, when 25% tariffs on Canada and Mexico were freshly imposed. A 3% multi-day relief rally from there eventually took the S & P 500 to a high right at 6,100 – upside resistance unless and until proven otherwise – on Friday morning. That was just before the University of Michigan consumer survey showed a big jump in one-year inflation expectations, almost certainly tied to tariff fears, with stocks legging lower still after President Trump vowed “reciprocal tariffs” on countries now imposing duties on U.S. goods. Stocks fell 1% from there into the weekly close. ‘Growth scare’ Still, beyond the daily games of headline pinball, investors as a group understand, or should, that whatever ultimate tariffs are or aren’t imposed will likely not be the deciding factor in whether the economic expansion and bull market persist. The trade balance in goods isn’t crucially important to the trajectory of the entire U.S. economy in a given year. A tariff conflict, rather, is treated by the market as a “war of choice” that might have positive eventual objectives but in the here and now threatens to throw sand in the gears of commerce and kick dust into the eyes of CEOs and capital allocators. More tangibly, an aggressive tariff war could be one more thing inviting the sort of “growth scare” the markets have come to consider a possibility. Friday’s job number , 145,000 for January, was light at the headline level though broadly “fine” given upward payroll revisions for prior months, weather disruptions and a dip in the unemployment rate. But along with a sluggish hiring rate from the JOLTS survey and tepid employment gains outside of services and the public sector, it suggests a low-velocity, steady-state labor market. 3Fourteen Research co-founder Warren Pies has been on “growth scare” alert for a while now, seeing a hobbled housing sector, interest-rate-constrained consumers and reduced fiscal liquidity — potentially exacerbated by a Federal Reserve unwilling to ease further given tariff effects on inflation. He also notes that in the years following a 20%-plus gain in the S & P 500, payments for capital gains the following spring tend to unsettle the stock market by early in the second quarter. This is all swirling around a market that came into 2025 priced for good things to happen, with investor expectations high, making it tough for reality to surprise pleasantly. Earnings growth in aggregate has been strong, with the usual rate of outperformance against forecasts. Barclays strategist Venu Krishna calculates that “the median miss (-3.3%) among companies that printed below-consensus EPS was not much worse than recent quarters. Despite this, the share price reactions have been notably worse, with average post-print move in reaction to an EPS miss nearly [one percentage point] lower than the long-term average.” Krishna adds that revisions to estimates for first-quarter profits outside of the tech sector are running a percentage point weaker than the historical norm, concluding that “we think markets will find plenty to nitpick by the end of this reporting season.” Magnificent 7 underperformance Alphabet shedding 9% and Amazon losing 4% last week after solid results but subdued guidance and radically increased capital-spending plans could be called nitpicks. The Magnificent 7 giants of the Nasdaq as a group have underperformed the S & P 500 by six percentage points since just before the Fed’s “hawkish rate cut” Dec. 19. And so, the market so far has indeed grown less beholden to those names- just as the vociferous consensus has insisted would happen for many months – though the overall index is flat since then. The crowd calling for a more inclusive market like to insist that stocks outside those seven dominant tech leaders look considerably less expensive. Yes and no. While there is a decent gap between the forward price/earnings ratio of the top seven and the “other 493,” in absolute terms the rest of the market trades at a 19 multiple, above most periods in history. This is why the call for a broadening of earnings growth is crucial to the 2024 bull case for the rank and file of the market. Of course, as they say, valuation is a weighing machine with little to say about what comes next, while stocks on a shorter frame are a voting machine. And right now, the most active retail-trading voters continue to bombard the market with aggressive buying in their favorite momentum names. Dollar volume in retail favorite Palantir Technologies shares on Friday was almost double that in Apple , a company with 13-times its market value, on no fresh news aside from Palantir’s torrid stock-price momentum itself, which carried the stock up 38% for the week and 370% over the past year. JPMorgan equity-trading analysts calculated that retail-trader sentiment on Wednesday was the highest the desk ever recorded, based on flow metrics, even “higher than the peak of the meme mania in 2021.” In the immediate term, JPMorgan says, the market tends to perform well on average following such extremes in retail buying over the next two weeks, after which the signal loses any value.
