The Week in Charts (5/19/25)
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The most important charts and themes in markets and investing…
1) In Rare Company
The S&P 500 is up over 19% in the last 27 trading days, one of the greatest comebacks in stock market history.
What immediately jumps out when looking at that table of big short-term rallies?
With the exception of November-December 2008, all have occurred at the start of new bull markets, following historic bear market lows in…
- October 1974
- August 1982
- March 2009
- March 2020
Did these huge short-term advances preclude further gains in the past?
Not at all. In every one of these prior instances, the S&P 500 would continue higher one year later, with an average total return of +41%. The average 5-year forward return: +140%.
2) The Biggest Volatility Crash Ever
When it comes to volatility, the saying “what goes up, must come down” rings true.
But it doesn’t usually come down this fast. In fact, we are now in unprecedented territory.
The 62% decline in the $VIX over the last 6 weeks is the biggest volatility crash in history.
The $VIX ended last week at 17.24, firmly below its historical average (19.49) in a move that many would have said was impossible a month ago. But as we learned once more, there is no impossible in markets.
3) Recession! What Recession?
On April 8, I ran a poll on X asking if the US economy was headed for a recession this year.
The results were overwhelmingly negative, with 67% of respondents answering “yes.”
I ran the same exact poll last week and just 37% of respondents answered “yes.”
What a difference a month makes…
Why the dramatic shift in sentiment?
A combination of factors, including the complete reversal in the Trump administration’s tariff policy (One example: 145% rate on China reduced to 30%), the historic rally in equity/credit markets (High Yield spreads have tightened 152 bps since April 7), and the incoming hard data suggesting we’ve yet to see a deleterious impact on the labor market, earnings, or inflation.
As for the tariffs – after what has transpired over the past month, no one seems to believe that even the reduced 15.4% overall effective rate is going to remain in place for an extended period of time. For if the market were to turn lower again, we would likely see more deals, more pauses, and more exemptions. Which is to say that when it comes to tariffs, there is no permanency to anything. Everything is an ongoing negotiation.
4) What They Do vs. What They Say
The University of Michigan Consumer Sentiment Index fell to 50.8 this month, the 2nd lowest reading in the survey’s history which goes back to 1952.
Why are US consumers so negative?
Likely because of their outlook for inflation and employment.
12-Month US Inflation Expectations in the same survey spiked to 7.3%, the highest level since 1981.
And over 60% of respondents are expecting more unemployment over the next year, the most since the 2008-09 financial crisis.
The big caveat here is that most of the survey responses were collected before the positive developments on trade with the UK and China. Which means that we’re likely to see a much more optimistic outlook in next month’s survey.
Still, given how negative consumers’ attitudes are, one might have expected to see weakness in the April retail sales number. But that was far from the case with US Retail Sales showing a +4.8% increase over the prior year and +2.4% after adjusting for inflation.
The lesson: watch what they do, not what they say.
5) Health Care Sector Woes
The ratio of the US Health Care sector to the S&P 500 hit its lowest level since January 2001 last week.
The Health Care Sector ETF ($XLV) is down 7% over the past year while the S&P 500 ETF ($SPY) is up 14%.
The biggest detractor for the sector this year has been UnitedHealth ($UNH), the largest US health insurer. Its shares are down 58% from their peak in the biggest drawdown for the stock since 2009.
While revenues for the company hit a record $410 billion over the past year, recent news of a DOJ probe into possible Medicare fraud are weighing on the shares. The company’s Medicare and retirement segment is their largest revenue driver, bringing in $139 billion in sales last year.
6) Rising Real Wages
After a record 25 consecutive months of negative real wage growth, wages have now outpaced reported inflation on a YoY basis for 24 straight months. This is a great sign for the American worker that hopefully continues.
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