What Just Happened?
We’re five months into the year, and if you’d just washed ashore after being marooned since January, a quick glance at the S&P 500 might leave you thinking: “Down (up) a percent for the year – not terrible. Looks like I didn’t miss much.” Yes, the index is mostly unchanged – no reason to break out a victory lap but also no catastrophic collapse prompting the media to run photos of traders with head in hands, looking distraught.
But that’s far from the full story.
April, for example, was a masterclass in whiplash: one of the fastest equity selloffs in years, followed by a rally so fierce it left seasoned macroeconomic forecasters eating their words. Much of this volatility followed President Trump’s “Liberation Day” pronouncements, which sparked trade skirmishes with nearly every U.S. trading partner. Also, the bond market has been anything but dull. Yields have seesawed in response to shifting expectations around inflation, liquidity, and economic health.
Rather than focus on short-term volatility and media drama, we believe investors should consider the long-term forces that appear to be reshaping the future of investing in ways that transcend short-term volatility. So, let’s take a step back and consider a few structural shifts that are quietly but profoundly redefining the investment landscape.
From Globalism to Regionalism
Not long ago, globalization was the bedrock of macroeconomic thinking: interconnected markets, seamless trade, just-in-time supply chains, and efficiency above all. Today, we’re seeing a retreat. Companies are reshoring operations, redrawing supply chains, and reevaluating political risk. While some of this shift can be attributed to Trump-era trade policies (some of which may or may not survive judicial review), the seeds were planted earlier. The pandemic illustrated the vulnerabilities of global supply chains, prompting a general reckoning on inventory strategy and geopolitical exposure.
The Machines Are Here
Artificial intelligence and automation are no longer just buzzwords. They’re beginning to reshape how industries operate, from manufacturing floors to offices. Rockets, chatbots, humanoid robots, AI driven software. We’re still in the early innings and skepticism is healthy. But betting against innovation has rarely ended well. This isn’t just a tech sector phenomenon—it’s a structural transformation, somewhat akin to the communications revolution of the late 1990s.
Rates Are Higher
Our monetary system is like plumbing – you don’t think about it until something breaks. For more than a decade, we lived in a world of near-zero interest rates, low inflation, and cheap capital. That era is over. We’ve entered a regime of structurally higher rates, and the consequences are evident: a handful of bank failures (not systemic), stress in commercial real estate, a cooling housing market, and mounting government debt service costs.
Much of today’s debt was issued under assumptions that are no longer true, and refinancing risk is no longer theoretical. The good news is that large U.S. corporations have strong balance sheets, but credit analysts have their work cut out for them, as rising bankruptcy rates indicate.
Now What?
Market turmoil often feels like a busy I-95 toll plaza headed into NYC: horns blaring, blind lane changes, pure chaos. But eventually, order returns as fast cars pull ahead and slow ones fall behind. Market selloffs operate the same way – everything gets dumped in a scramble for liquidity, then trends resurface.
That’s exactly what we saw post-April. Technology stocks snapped back, especially in high-growth subsectors. Bond yields edged higher. But while the White House talked trade war “de-escalation,” tariffs are not going away, and businesses are already adjusting to this new reality. (Just ask Walmart, which recently cited tariffs when explaining price hikes on avocados and electronics.)
So, where do we go from here and what matters most for investors? We believe the three themes highlighted above are key structural forces to be considered in shaping portfolios, no matter where we are in the business cycle. Over the intermediate to long term, these big picture shifts will matter far more in investment portfolio outcomes than any single daily, weekly, or even monthly market move.