Focusing on the Future, Acknowledging the Past

Reasons to Be Optimistic — But Starting Points Matter

As markets react to tariff announcements and their implications for global trade and the broader economy, it’s important to take a step back and ground ourselves in both historical perspective and current market structure. While recent headlines and volatility may suggest renewed risks, there are still strong reasons to remain constructive on markets—especially when considering valuations, index concentration and the resilience of global systems.

Tariffs: A Reality Check

Not all tariffs are created equal. To distinguish between shorter-term disruptions and longer-term structural changes, our team has bifurcated our research approach. Base tariffs—those imposed unilaterally and unlikely to be rolled back—are largely structural and, as of this writing, have been set at 10%. In contrast, we view reciprocal tariffs as more fluid negotiating levers. In fact, reciprocal tariffs are evolving daily as this commentary is being written.

We believe markets have already priced in base tariffs to a large extent. Our base case is that the S&P 500 Index, currently around 5,400, reflects the implementation of base tariffs but not the long-term enforcement of reciprocal tariffs as currently proposed by the Trump administration.

Historically, broad-based tariffs have not produced positive economic outcomes. While supporters argue for benefits to domestic industries, evidence often points to higher costs for consumers and businesses, disrupted supply chains and retaliatory measures from global trading partners. The current backdrop is further complicated by a broader global trade realignment already in motion. Although a more diversified and resilient trade ecosystem may be a long-term positive, this transition—especially when paired with tariffs—will likely be disruptive in the short- to medium-term and could take years to yield measurable benefits.

Starting Points Matter

While the tariff debate continues, it’s important for advisors to evaluate where we are starting from in terms of market valuations and index structure. Coming out of COVID-19, the market has delivered strong returns supported by both earnings growth and valuation expansion, contributing to significant concentration at the top of the index.

The S&P 500 currently trades at a forward price-to-earnings (P/E) ratio of approximately 20.1x, above the 10-year average but below prior peaks.

Source: Bloomberg, as of 04/11/2025

While valuations aren’t cheap, they are not alarmingly stretched either—especially relative to interest rates and growth expectations. That said, we acknowledge that earnings risk is rising due to potential consumer and business responses to new tariffs. While the P (price) has come down recently, the E (earnings) has yet to be fully revised.

Perhaps a more pressing issue is market concentration. As of year-end 2024, the top 10 companies comprised over 33% of the S&P 500 market cap, largely driven by mega-cap tech.

Source: Bloomberg, as of 12/31/2024

This elevated concentration increases index-level volatility and narrows market leadership. Advisors should continue encouraging diversification beyond the index’s dominant names.

Reasons to Be Optimistic

Despite headline-driven risks, several structural positives support a cautiously optimistic outlook:

1.  Post-COVID-19 Supply Chain Strength
   Global supply chains are more resilient than they were pre-COVID-19. Businesses have diversified vendors, nearshored operations and built flexibility into procurement strategies—strengths that will help buffer against future disruptions.
   
   
2. Global Trade Is Adaptive
   While tariffs may temporarily disrupt trade, the global system is dynamic and adaptive. Over time, supply chains reconfigure, trading partners shift and inefficiencies are absorbed.
   
   
3. This Shock Is Reversible
   Unlike past downturns triggered by systemic banking stress or exogenous shocks, this current market stress is policy-driven and reversible. There is no underlying credit crisis—just political maneuvering that could change quickly.
   
   
4. Potential Tailwind from Lower Yields
   A meaningful decline in the 10-year Treasury yield could reduce government borrowing costs and help thaw the US housing market. Lower mortgage rates could unlock supply and improve consumer confidence.

Bottom Line for Advisors

Markets are navigating tariff uncertainty, but structural improvements and the absence of systemic financial risk provide reasons for cautious optimism. Focus client conversations on valuations, index composition and the benefits of diversified exposure. And most importantly, stay grounded—base decisions on sound reasoning, not reactive headlines or an overstimulated financial media.

Important Disclosures & Definitions

Price/Earnings (P/E) Ratio: a valuation ratio of a company's current share price compared to its per-share earnings.

S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization. One may not invest directly in an index.

AAI000929  04/15/2026