The new bull case for the stock market is looking past short-term risks
One way for investors to justify buying stocks now, despite all of the uncertainty in the macroeconomy, is to operate as if today’s news likely won’t matter much to the market in a year. Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note to clients that there is a new “bull case” for the market emerging that considers tariffs to be a “non-event,” at least partly because lower oil prices will help to offset inflation concerns. The outlook for corporate profits also gives investors a reason to wave off any negative trends in the upcoming, second-quarter earnings season. “2026 S & P 500 earnings are expected to show accelerating growth from 2025’s 7-8% to 13-14% — gains come from margin expansion, tax benefits,” Shalett said. Another factor Shalett mentioned is a “bad news is good news” situation with the Federal Reserve, which could deliver rate cuts if the economy starts to weaken. Shalett’s theory helps explain why markets have been so calm recently despite the fact that tariff threats from the White House are ramping back up again. President Donald Trump’s imposition of 50% tariffs on Brazil this week was even above the level the country faced on April 2, before the market swooned and many global tariffs were delayed. Kristy Akullian, head of iShares investment strategy for the Americas, pointed out in a commentary that July has so far been marked by low trading volumes and low volatility. “Markets have boosted their immunity to uncertainty: neither last week’s passage of the [One Big Beautiful Bill Act] nor this week’s tariff announcements caused the S & P 500 to budge by more than 1%. In April, policy announcements were met with 11 such days of > 1% swings. Similarly, the VIX now sits below 17; in April it spiked above 60 and averaged 32 over the month. In fact, since the local lows of April 8th, the index has rallied more than 25%, despite the overhang of unresolved trade deals,” Akullian said. The VIX refers to the Cboe Volatility Index , which measures the expected moves in the S & P 500 over the next month based on options pricing. .VIX 6M mountain The Cboe Volatility Index is trading well below its highs from earlier this year. Of course, the line between confidence and complacency can be a thin one for investors. Charles Schwab chief investment officer Liz Ann Sonders told CNBC that she sees more downside risk than upside for equities and highlighted a curious divergence in different markets at the moment. “Generally, you’ve been in this kind of lower yield backdrop since the latter part of May, suggesting that the bond market is pricing in less economic growth. Yet the cyclicals within the equity market are pricing in more economic growth. I think that there’s just mixed messages coming from various markets,” Sonders said. – CNBC’s Michael Bloom contributed reporting.
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