If you took a quick glance at the stock market’s performance over the last two months, everything looks peachy. The S&P 500 is within striking distance of a new all-time high, the market’s recovered 20% since April 8 when President Trump’s trade war kicked off, and high-flying tech stocks are defying AI bubble fears.
But that narrative doesn’t quite jibe with all the chaos and whiplash investors have experienced lately. Iran and the US just exploded into open conflict, the Fed is staying put, and economic powerhouses are forecasting a global slowdown. On top of all that, the 90-day tariff deadline is approaching, and the US has only struck a handful of deals.
However, investors have been ignoring all that and focusing on the far sunnier news. After all, it appears that Iran and Israel have agreed to a ceasefire, the tariff deals the White House has made show a readiness to ease trade tensions, and inflation has managed to stay calm despite fears that high levies would push prices higher.
The other shoe could drop at any moment
Under the surface, the market is rife with anxiety.
Just look at the latest consumer confidence numbers: The Conference Board’s consumer-confidence index fell from 98.4 in May to 93 in June, which surprised analysts and investors alike.
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“The decline in consumer confidence highlights mounting economic headwinds, with tariffs continuing to weigh on sentiment despite ongoing efforts to de-escalate trade tensions,” wrote Chief Investment Officer of Global Equities at UBS Global Wealth Management Ulrike Hoffmann-Burchardi.
Another canary in the coal mine is investors’ concentration in tech stocks. A huge part of the S&P 500’s recovery since Liberation Day has been in big tech, which has boomed as demand for AI increases. Just look at Nvidia, which is up 11.57% year to date, or Palantir, which has jumped 90.05% in 2025.
Investors continue to focus on the biggest and seemingly safest stocks on the market, those that have proven themselves to be winners over the last few years. But even these stocks have had a difficult year, and the Magnificent 7’s recent recovery masks the broader market’s struggle to post gains. Sectors outside tech, such as consumer discretionary and healthcare, have had a far rockier 2025, while many small-cap stocks remain below their pre-tariff levels.
The big picture: The market’s recent gains are not necessarily propped up by a sound economic picture, and could be a sign of false confidence. As per usual, the whole stock market is once again resting on a few key AI stocks—for better or worse.—LB