Regardless of your politics, “calm” is not a word you would likely use to describe the stock market under President Trump, at least through the first three months of his second term. But given the extreme tariff-fueled volatility that pervaded this time a week ago, that’s exactly how the last week has felt for investors: calm.
That is, of course, a relative term. The VIX is still north of 30; tariffs are very much still in the news, particularly as they relate to China; and the S&P 500 is still down more than 9% year to date.
However, stocks have barely budged in the last week, and we aren’t seeing the same kinds of wild intraday swings that were making investors’ heads spin in the week-plus that followed the April 2 “Liberation Day” tariff announcements. And while the VIX above 30 is certainly high by historical standards, it’s well down from the peaks in the mid-50s we saw on this day a week ago.
Does it mean the worst of the early-2025 selling is behind us, and that a bear market (at least in the S&P) has been avoided?
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It’s too early to tell. It’s just one week; widespread global tariffs outside of China are merely on a 90-day pause and loom as a massive dark cloud that could come back into play; and one tweet or comment from the president could cause panic all over again. But, it’s progress at a time when investors desperately needed it.
Value Stocks to Lead the Recovery?
And value stocks continue to outperform. The Vanguard Value Index Fund ETF (VTV), while also flat in the last week, is down only 3.8% year to date and never approached bear territory the way the major indexes did (the VTV was down “only” 14.5% at its trough).
Plus, the sharp pullback in the market means there’s way more value out there than there was two months ago. With a forward price-to-earnings ratio of 19.3, the S&P is the cheapest it’s been in three years – since near the 2022 bear market bottom. What followed was two straight years of 20%-plus gains.
That doesn’t mean we’re destined for a similar V-shaped rally this time around. In fact, I’d bet against it. Rallies from such a sharp decline – and one that flipped the Nasdaq and the Russell 2000 from bull to bear, though not the S&P or the Dow – usually take time, with some fits and starts along the way. But if you’re a value investor, there’s more to choose from now than there was two months ago.
The just-underway first-quarter earnings season will determine whether forward valuations remain this depressed – full-year guidance may be muted for some companies given the tariff uncertainty, as we saw from the banks this week, and some may avoid concrete guidance numbers altogether (or, if you’re United Airlines (UAL), provide TWO guidance scenarios – one with high tariffs and one without them).
For now, though, the combination of value and relative calm is appealing – or at least far more appealing than it was a week ago. And that’s why I currently have seven Buy-rated stocks in my Cabot Value Investor advisory portfolio. To learn their names, simply click here.
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