Summary

After almost two months of dramatic market swings -- including one point at which the S&P 500 had fallen 19% from its all-time high -- the closely-watched VIX Volatility Index has declined back below its historical average of 20. Meanwhile, stock prices have recovered most of the lost ground and the benchmark S&P has again turned positive for the year. We can't say the recent downdraft was unexpected. Indeed, in our 2025 Market Outlook, we noted that investor complacency was high, that tariffs and trade wars could slow the economy, and that stock valuations were susceptible in the event of a sell-off in the Information Technology sector. That was our "Bearish Case," and certain elements are likely to linger for the next few months, at least. Our "Base Case" called for another year of growth in the U.S. economy (and no recession), declining interest rates, and double-digit EPS growth. Each of those planks in the "Base Case" platform is currently in place. So assuming that the Trump administration gets its economic growth plans firmly on track, there's reason to expect that equity prices can't continue to recover. Back to the market, the current VIX fear index reading is around 18.0, which is again below the 10-year average of 20