“Liberation Day” got the volatility rolling. President Donald Trump’s sweeping April 2 tariff announcements threatened to upend key global trade relationships.

Investors panicked, fearing a return to trade war conditions.

Then China and the European Union threatened to retaliate. It was too much for the market’s frayed nerves.

The S&P 500 dropped more than 5% in just six trading days. The Nasdaq tumbled nearly 7%.

In less than two weeks, Big Tech giants Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA) all fell double digits, erasing trillions of dollars in market cap.

Treasury yields spiked to 4.6% as investors braced for sticky inflation and a more hawkish Federal Reserve.

By mid-April, it seemed like investors couldn’t take much more. Volatility was on the rise. And investor sentiment hit a low point.

But then, as fast as the panic set in… it all snapped back. The S&P 500 clawed back its losses in less than three weeks.

Facebook owner Meta Platforms (META) kicked off earnings season on a high note, with a 15%-plus earnings beat and a new $50 billion buyback plan.

Amazon (AMZN) followed suit a day later with 9% year-over-year revenue growth. It expects to grow revenue another 9% or so next quarter.

By mid-May, it was like the sell-off never happened.

This kind of volatility feels chaotic. But it’s important to look past the surface-level price action and consider the fundamentals. We’re not in the same position we were in early April.

New York University Finance Professor Aswath Damodaran is one of the sharpest market analysts in academia. He publishes all kinds of insightful articles and videos for free online.

And last month, he shared some thoughts on the Liberation Day trade, right when the stock market had just fully recovered.

Damodaran ran a number of analyses on the recovery. He found that technology, growth, and momentum-based stocks looked a lot stronger in early May than they did in early April.

Those are the kinds of stocks that drove last year’s fantastic performance and that tells us investors are getting excited again.

We’ve been waiting for an improvement in the earnings-growth picture for some time. All we needed was confirmation that said earnings growth was, in fact, happening.

Well, we finally got official 2024 numbers. Uniform U.S. economic profit (corporate earnings minus costs) grew 10% for the year, almost a full recovery from 2023’s pullback.

Better yet, it’s expected to grow 10% this year, reaching an all-time high. And growth is expected to accelerate to 18% next year.

Take a look…

As you can see, growth signals finally look strong.

After underperforming in the first quarter, tech has taken the lead again. AI, cloud infrastructure, and high-margin software-platform stocks are climbing.

We wanted confirmation that the post-2023 recovery reflected true business growth and now we have it.

Nothing else changed this month. Valuations, sentiment, and credit all remained stable.

That means the fate of the stock market lies in corporate America’s hands for the time being.

If earnings keep rising, the market has room to run.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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