Markets Brief: Why Politics and Investing Don’t Mix

The Morningstar US Market Index closed last week up 4.7%—12.8% higher than its recent low on April 8 and only 1.7% below where it was at the end of March. The recent gains were led by sectors such as communication services, up 6.4%, consumer cyclical, 6.5% higher, and technology, which rose 7.7%.

Despite this, these sectors, which house the Magnificent Seven, remain lower in the year to date. In contrast, less-“magnificent” companies in the consumer defensive, healthcare, and utilities sectors remain in positive territory in 2025. This reminds us that behind the turmoil caused by tariff policy, the key driving force in equity markets has been a closure in the valuation gaps that drove price movements in 2024.

This can also be seen at the international level, as US stocks have lagged the Morningstar Developed Markets ex-US Index, which is up 9.3%, and Morningstar Emerging Market Index, which is 1.2% higher over the year to date. These returns have benefited from an 8% decline in the US dollar over this period. Dollar weakness has also contributed to the strength of the markets at the heart of the tariff storm, with the Morningstar Canada Index up 4.9%, the Morningstar China Index up 9.1%, and the Morningstar Mexico Index up 21.5%. This reinforces that politics should be kept separate from investing decisions.

Strong Start to Earnings Season

We have seen a strong start to the earnings season. However, enthusiasm for these results have been tempered by broader economic concerns, as earnings growth is expected to slow sharply this quarter to an annual rate of 6.4%, compared with 10.1% for the first quarter.

As we enter the busiest part of the earnings season, key companies reporting this week include Amazon AMZN, Apple AAPL, Meta Platforms META, and Microsoft MSFT. You can follow these results on Morningstar’s dedicated company earnings page.

Alongside the torrent of earnings announcements, the week ahead is unusually packed with economic data, including the Personal Consumption Expenditures Price Index report on Wednesday. This is expected to show a fall in core inflation, excluding volatile food and energy costs, from an annualized rate of 2.8% in February to 2.5% in March. Wednesday brings the first reading on US GDP, with economic growth expected to have fallen from 2.4% to 0.4% over the first quarter.

Will the Fed Cut Rates This Year? And How Much?

This combination of weaker economic growth and lower inflation is raising expectations of interest rate cuts by the year end, with CME FedWatch suggesting an 84% probability of at least 75 basis points of cuts over this time, compared with the 50 points predicted a month ago. Higher inflation could challenge this expectation, leading to higher volatility.

The week ends with the nonfarm payrolls employment report on Friday. This is expected to show modest growth of 130,000 jobs and a stable unemployment rate. You can keep track of the myriad announcement with this calendar.

Against this background, we can expect a battle among commentators keen to use the data to explain and forecast asset price movements. But if the last month has taught us anything, it is the futility of focusing on predicting short-term market movements and using those predictions as a guide for investing.

Investments Need to be Resilient

In very volatile political and economic environment, it’s far more important that our investments can withstand a wide range of outcomes than it is to correctly predict the next price move. A well-constructed, diversified portfolio of assets trading at or below a realistic assessment of their fair values will serve better in the short run and help preserve capital (and fortitude), enabling one to continue investing over the long term. Amy Arnott explains this well.

As the world becomes evermore fixated on moment-by-moment price movements, the ability to invest with a longer-term perspective is a huge advantage.