After a rocky start to the year, markets have staged a strong comeback. What began as a sharp pullback and rising investor anxiety has turned into one of the more impressive rebounds we have seen in recent memory.
The S&P 500, for example, hit a low in April, only to surge more than 35% by early October. Even with some day-to-day volatility, that is a forceful move off the bottom.
Stepping back to look at July through September, the story is simple: it was a very good quarter. Gains were broad-based across multiple asset classes. One of the biggest surprises? Gold, up an astonishing 63% year to date, with particularly strong performance over the last six months. Even the Barclays Aggregate Bond Index posted a 4% gain, a pleasant surprise after several years of muted returns.
The takeaway: Anyone sitting on the sidelines due to fears of tariffs, inflation, or the latest geopolitical crisis has missed quite a bit of money-making potential. The turnaround has been that fast.
From Fear to FOMO
The earlier pullback, a swift 10% decline in just a couple of weeks this spring, left many investors cautious. Fear was understandable: volatility spiked, and headlines focused on geopolitical and international trade tensions.
But as markets recovered, the fear of missing out started creeping back in. The question then became: how quickly could investors regain confidence after a sell-off?
That is not easy to do. Behavioral biases and recent experiences make it hard to trust a rebound when you have just lived through a drop. Many people wait too long, sometimes months or even years, before stepping back in.
Meanwhile, the market moves on without them.
What Is Driving the Positive Returns?
Despite headlines about government gridlock, the tariffs earlier in the year, and more, the market continues its upward trajectory.
What is behind this resilience?
- Falling Interest Rates.
The Federal Reserve appears to be in a cutting cycle again. Markets are pricing in a 96% probability of another 25-basis-point cut within weeks and an 86% probability of another cut by December. Current expectations suggest a Fed funds rate of 3.5% to 3.75% by the end of the year. Lower rates are generally supportive for equities, and the old “Don’t Fight the Fed” mantra still holds true. - Fading Inflation.
After a long stretch of high inflation, price pressures are cooling, giving both consumers and policymakers some breathing room. - Pro-Business Policy Environment.
This year has seen a shift toward policies perceived as more favorable to business, which has helped boost sentiment.
Put those together, and you have an environment that continues to reward risk-taking, at least for now.
Disruptive Technology: The Engine of Growth
Growth continues to be powered by a familiar force: disruptive innovation.
Technology companies now make up a staggering share of major indexes. In the U.S., the tech sector, along with a few not-technically-tech (but we know they’re tech) giants like Alphabet, Meta, and Tesla, represents nearly 50% of the S&P 500. Globally, the top 10 companies – mostly U.S. firms – now account for roughly 25% of total market capitalization.
That concentration can be both a strength and a risk. On one hand, these companies generate tremendous cash flow, have defensible business models, and are investing heavily in the next big thing, particularly generative artificial intelligence (AI).
Just five names, NVIDIA, Microsoft, Amazon, Alphabet, and Meta, now generate almost $600 billion in annual revenue, while continuing to reinvest heavily in capital expenditures for future growth. These are not speculative companies; they are profitable, scalable, and integral to global innovation.
The Seasonality Advantage
History provides another reason for cautious optimism. Since 1980, the S&P 500 has peaked in the fourth quarter nearly 75% of the time. More than half of those peaks (53%) occur in December, and another 20% between October and November.
Statistically speaking, when markets are up heading into October, they tend to finish the year higher. In fact, U.S. equities post gains in Q4 about 82% of the time, with average returns between 19% and 22% when the year ends near new highs.
That does not guarantee smooth sailing, but it does tilt probabilities toward continued strength through year-end, barring any major shocks.
What About Valuations and Risk?
It’s true: valuations are high. Forward earnings multiples remain elevated by historical standards, meaning that long-term return expectations may be lower from here. But for now, disruptive technology continues to justify a premium, and markets seem content to pay it.
This brings us to the central tension in today’s market: optimism versus caution.
On one hand, you have robust earnings, cooling inflation, and supportive monetary policy, all of which argue for staying invested. On the other, you have stretched valuations and a market heavily reliant on a handful of giant companies.
That is where diversification and discipline matter most. When everything seems to be going up, it is easy to get complacent. At Topturn, we continue to ask important questions, no matter what the outside world is doing, including:
- Is your portfolio’s risk level where it should be, given who you are, what you need from your portfolio, and what is happening in the outside world?
- Is your portfolio appropriately diversified across sectors and asset classes? Is there adequate liquidity?
- How well prepared is your portfolio for a topturn, if appropriate, redirecting into the wave when conditions change?
We came out of a volatile first half of the year to see an abrupt and powerful rebound, one that caught many investors by surprise. The data, the trends, and even the seasonality all point toward a constructive backdrop heading into year-end.
However, we know that following trends and historical moves aren’t solid portfolio management strategies. Instead, preparation, analysis, and seeking opportunities in unexpected places, help us achieve success over the long term.
