Investors have a lot to worry about at the moment.
There are tariffs and the growing federal deficit; immigration raids that have targeted businesses across the country; and, most recently, another major war in the Middle East, between Israel and Iran. Consumers are worried, business confidence is low, and corporate profits are expected to fall.
Despite it all, stocks are climbing.
The S&P 500 is less than 2 percent below its record high, and the volatility that racked financial markets just two months ago has quieted.
There are reasons for this: The worst anxiety whipped up in April by President Trump’s trade war has abated as the White House has delayed tariffs, offered carve-outs and hailed agreements with trading partners that signal his willingness to back down from a hard-line stance. Plus, inflation data continues to show that tariffs have yet to lead to sharply higher consumer prices. And while investors worry about the impact of deportations and federal staffing cuts on the labor market, so far the data shows that the economy remains resilient.
Even the dip in stocks that followed Israel’s attack on Iran appears to have been short lived.
But for some investors and analysts, the gains in the stock market don’t tell the whole story.
In derivatives markets, investors are still bracing for a steep drop in stocks later in the year. In the bond market, concerns over the U.S. government’s $35 trillion debt linger. Peeling back the layers of the S&P 500 itself shows investors are less bullish than the nearly record high would suggest.
“It’s a divide,” said Ralph Axel, an interest-rate strategist at Bank of America. “On the outside it looks like a relatively normal market, but there is also very large underlying uncertainty.”