Stock Market Resilience Amid Uncertainty

Despite a backdrop of persistent macroeconomic concerns—including tariff uncertainty, elevated inflation, and ongoing geopolitical tensions in Ukraine and the Middle East—the U.S. stock market continues to defy expectations. The S&P 500 has reached new all-time highs, buoyed by resilient corporate earnings, strong consumer spending, and optimism around future monetary policy.

Earnings Strength and Forward Outlook

In the second quarter of 2025, S&P 500 companies delivered another solid earnings season. According to FactSet, 81% of companies reported positive earnings surprises, and the blended year-over-year earnings growth rate came in at 11.8%, marking the third consecutive quarter of double-digit growth.  Revenue growth was also robust, with 81% of companies exceeding top-line expectations.

Looking ahead, consensus estimates project continued earnings momentum. Analysts expect S&P 500 earnings to grow from approximately $242.11 in 2024 to $276.10 in 2025 and $312.17 in 2026, reflecting confidence in margin expansion and operating leverage. This growth is expected to broaden beyond the technology sector, with contributions from industrials, healthcare, and financials.

Valuation Landscape

Valuations remain elevated by historical standards. The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 currently stands at 22.1, above the 5-year average of 19.9 and the 10-year average of 18.5. However, this headline figure masks significant dispersion. The largest technology and communication services companies continue to command premium multiples, while the equal-weighted S&P 500 index trades closer to its long-term average.

Navigating Macro Risks

While the market’s ascent has been impressive, risks remain. Tariff policy remains a key concern, particularly for sectors with global supply chains. Inflation, though moderating, continues to pressure input costs. And geopolitical instability adds a layer of uncertainty that could impact investor sentiment and corporate investment decisions.

Yet, history shows that equity markets can perform well even in the face of such challenges—especially when supported by earnings growth and accommodative monetary policy. As noted in our Year End 2024 letter, when the Federal Reserve cuts rates without a recession, equities have historically delivered strong returns in the ensuing 12 months.

Conclusion

The market’s resilience reflects a complex interplay of strong fundamentals, investor optimism, and policy expectations. While valuations suggest a need for selectivity, the earnings backdrop remains supportive. We continue to monitor developments closely and remain committed to navigating these dynamics with discipline and perspective.

Please don’t hesitate to reach out with any questions or to discuss your portfolio in more detail.