"Choppy" is the new "uncertainty" on Wall Street
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"Choppy" is the new buzzword for investors who view "uncertainty" as a rearview problem.
Why it matters: Consensus is building around a bullish path to the year-end, but that bullishness has an asterisk: Investors should expect headline-driven volatility to be a feature, not a bug, for this bull market.
What they're saying: "The path forward is unlikely to be smooth," Keith Lerner, the co-chief investment officer at Truist, writes in a note to clients, adding the uptrend deserves the benefit of the doubt.
- Historically, markets are more unsettled in August and September, which is also right in the middle of earnings season.
- The last earnings season came directly after tariff policy changes, making it hard for companies to give investors clarity on their impact. Investors want more transparency in this upcoming cycle.
- "Now's the time to tune up your portfolio before fall volatility rolls in." writes Gina Bolvin, president of Bolvin Wealth Management Group.
By the numbers: Part of the choppiness is what's driving the current market rally, a bit more sentiment than fundamentals, per to a recent note from Lori Calvasina, head of U.S. equity strategy at RBC.
- Even her best-case scenario for the S&P 500 — which factors in inflation at 2%, one interest rate cut by the Federal Reserve, 10-year yields remaining at current levels and earnings per share of $270 — lands the market at 6,200 to end the year. That's below where we are today.
- "The rate of upward EPS estimate revisions for the S&P 500 is already back to post-COVID/non-crisis rebound highs, making us wonder if this is as good as it gets for 2025 earnings," Calvasina writes.
The intrigue: Every single midyear outlook reviewed by Axios Markets — ranging from Vanguard to J.P. Morgan to Bank of America — refers to some sort of volatility or choppiness to come in the second half of this year.
Yes, but: Companies have proven resilient in the face of the pandemic, supply chain disruptions and record inflation, leaving Lerner at Truist to think large companies can stomach the current buffet of policy risks, too.
- "My expectation is they're gonna continue to adapt," he says. "If you get some of that choppiness, maybe that's an opportunity."
- Lerner expects companies to beat estimates during earnings season by about 4% to 5%, but adds it's all about guidance.
The big picture: The administration's focus on tariffs may have delayed, but not removed, the catalysts that could deliver gains regardless of short-term volatility:
- Deregulation fueling increased M&A and a more robust IPO pipeline.
- Tax cut extensions that fuel clarity for businesses.
- Lower interest rates from the Federal Reserve.
What we're watching: After defensive plays like industrials and utilities drove gains in the first half of the year, sector leadership could be set to turn more offensive.
- In recent days, cyclical areas of the market, such as semiconductors and homebuilders, are starting to break out to new all-time highs.
- Investors may be pricing in an early cycle of an economic reacceleration.
The bottom line: Any expansion would drive stocks higher, even if the headlines lead to volatility along the way.
