The S&P 500 has delivered strong returns the past two years, setting 57 all-time highs in 2024 and adding more than 35 in 2025. Large-cap stocks have benefited from a combination of AI enthusiasm, resilient earnings, and strong economic growth. However, one corner of the market has been noticeably absent: small-cap stocks. While the S&P 500 climbed to new highs, this month’s chart shows the Russell 2000, an index of small-cap stocks, remained stuck below its November 2021 peak. The four-year drought ended this fall when small caps broke through to new highs, driven by expectations for additional Federal Reserve rate cuts.

This month’s chart shows the S&P 500 has set 36 new highs since the start of the year. While it’s a decline from last year’s pace, the number of new highs in 2025 ranks 18^th compared to the past 98 years. The S&P 500’s strong performance this year is part of a broader equity market trend, with multiple other major equity indices also setting new highs. The Nasdaq has logged 36 new highs, the Dow Jones has posted 17, and the small-cap Russell 2000 has recorded six new highs after finally surpassing its 2021 peak.

Recent consumer survey data has revealed a widening gap between how consumers view the stock market and the economy. This month’s chart shows a dark blue line tracking the percentage of consumers who believe the stock market will rise over the next year, while the light blue line shows the University of Michigan’s Consumer Expectations Index, which measures outlooks for income, employment, and overall economic conditions. The takeaway: confidence in the stock market has rebounded, but overall sentiment remains weak.

Corporate credit spreads are at levels not seen in decades. Investment-grade credit spreads, which measure how much more a top-rated company pays to borrow compared to the U.S. government, have fallen to 0.77%, a level last seen in 1998. Today’s credit spreads stand out for how tight they are compared to history, with companies paying a significantly smaller risk premium to borrow.

This month’s chart shows how different withdrawal rates can impact a retirement portfolio’s lifespan. It assumes an individual retired in 2000 at age 65 with $500,000 and started taking monthly withdrawals. Each line reflects a different withdrawal rate between 4% and 8%, showing how the portfolio fared through age 85. While all scenarios start at the same point, the paths quickly diverge, especially during periods of market volatility. The chart illustrates how a retiree’s withdrawal strategy can determine whether the portfolio lasts or runs out.

Technology spending is growing at its fastest rate in decades, with a +14% year-over-year increase in Q1 2025—the highest since the late 1990s. This surge mirrors the dot-com era, when tech investment exceeded +15% YoY before sharply declining in the early 2000s. After a brief rebound in the mid-2000s, investment turned negative during the 2008 slowdown. Throughout the 2010s, growth averaged a modest +5.5% annually. Although the COVID pandemic temporarily stalled spending, tech investment has since reaccelerated to levels not seen since the 1990s.

The stock market’s performance is a function of two variables: earnings and valuations. A company generates profits, and investors assign a multiple to those profits, such as 15x or 20x earnings, to determine the company’s valuation. This year, earnings have been in the spotlight as policy uncertainty around tariffs and global trade clouds the outlook. With Q2 earnings season starting in mid-July, it is a good time to see how companies performed in Q1.

As trade policy changes, soft and hard economic data are back in the news. Soft data, such as surveys, measures sentiment, expectations, intentions, and how respondents feel about the economy. In contrast, hard data measures actual results and activity, such as production, spending, and job growth. While they typically move together, there are periods of heightened uncertainty where they can diverge, such as today. This month’s chart focuses on the difference between soft and hard economic data and discusses how to interpret their recent divergence.

Last week, President Trump announced new tariff measures, including reciprocal tariffs on about 60 countries with significant trade imbalances or barriers, and a 10% baseline tariff on all imports and higher These changes mark a sharp shift from decades of declining tariff rates, with the average U.S. tariff projected to rise from under 3% to over 20%, the highest in nearly a century.

What’s Behind the Market Selloff? First, momentum stocks that led the 2024 rally are now experiencing a sharp reversal. Second, investor exposure to the stock market was high entering 2025. Third, optimism around the Trump administration’s pro-growth policies has given way to concern, with worries that spending cuts and the uncertainty created by tariffs will slow economic growth.

In recent years, the Federal Reserve carried out one of the fastest rate-hiking campaigns in history to bring inflation down from a multi-decade high. After holding rates high for over 12 months, the central bank started its current rate-cutting cycle in late 2024, lowering rates by a total of -1% between September and the end of December. Where do things stand now?

The S&P 500 currently trades at over 21 times its next 12-month earnings estimate, a level not seen outside of periods like the late-1990s tech boom and the recent post-COVID recovery, when interest rates were near zero. Why do high valuations matter? History shows that while valuations have a limited impact on short-term returns, they play a critical role in determining long-term performance.