The pullback of the S&P 500 from its record highs in Tuesday’s session marked a notable development that cannot be read merely as a fleeting corrective move, but rather as an early signal that U.S. markets may be entering a more complex phase—one in which traditional economic factors intertwine with direct and unprecedented political intervention in pricing mechanisms.
In my view, this relatively modest decline conceals a deeper shift in investor sentiment, as market participants have begun to reassess political risk with the same weight they have traditionally assigned to inflation and interest rates.
What stands out is that the decline occurred despite better-than-expected inflation data, which under normal circumstances should have provided markets with a positive boost.
What happened instead reinforces my conviction that markets are no longer driven solely by numbers, but by “predictability.”
Professional investors fear negative news far less than they fear sudden decisions with unclear trajectories, and this is precisely what is reflected in the series of statements and proposals issued by President Donald Trump over the span of just a few days, ranging from banking and technology to energy and even monetary policy.
The drop in JPMorgan’s stock despite its operational outperformance reflects, in my opinion, an important shift in how bank equities are being priced.
The market did not punish results; it punished the potential future. Talk of imposing a cap on credit card interest rates, even if only for a single year, directly undermines the profitability model of both the banking and consumer sectors. My expectation is that bank stocks will remain under pressure in the short term—not due to financial weakness, but because of regulatory uncertainty that may prompt investors to temporarily scale back their positions.
The spill over of pressure to companies such as Visa and Mastercard confirms that concerns are not limited to banks alone, but extend to the entire credit ecosystem. From my perspective, the market has begun to price in a scenario of broader government intervention in pricing and margins—an outcome that, if realized, would fundamentally change the rules of the game for sectors traditionally viewed as stable havens. Accordingly, I expect continued volatility in financial sector ETFs, with performance potentially remaining below the broader market average during the first half of the year.
On the other hand, targeting defense and technology companies with statements related to profits or infrastructure costs—as seen in the case of Microsoft—opens a new avenue of concern. In my view, the market is beginning to realize that size and market power are no longer sufficient shields against political risk. This leads me to believe that mega-cap technology stocks may undergo a moderate revaluation—not a collapse, but a transition from a phase of smooth ascent to one that is far more selective.
As for oil prices, their rise amid escalating tensions with Iran reintroduces a familiar geopolitical factor into the market equation. My outlook here is twofold: in the short term, energy stocks are likely to benefit from these developments; in the medium term, however, higher energy prices could rekindle pockets of inflationary pressure, potentially complicating the monetary policy path that appeared clearer just weeks ago.
Recent inflation data and a relatively softer labour market support the “soft landing” scenario, which I continue to view as the most likely economic outcome. The problem, in my view, is that politics could derail this trajectory. The independence of the Federal Reserve is a cornerstone of market stability, and any public questioning of it raises the risk premium demanded by investors. As such, I expect markets to react with heightened sensitivity to any further escalation on this front.
The fact that a large number of stocks are hitting 52-week highs confirms that the market is not broadly weak, but rather deeply divided. We are facing a highly selective market, where strength is concentrated in companies with clear business models and stable cash flows. That said, I partially agree with the view that a K-shaped economy is unsustainable, and I believe this divergence could eventually weigh on consumption, thereby limiting the S&P 500’s ability to deliver double-digit gains for a fourth consecutive year.
In conclusion, my expectation is that the S&P 500 has not yet entered a phase of structural decline, but it has entered a phase of “risk repricing.” The most likely path in the coming months is a volatile, range-bound movement, with selective opportunities in specific sectors, offset by clear caution toward sectors most exposed to political intervention. The market has not lost its momentum—but it has lost its certainty, and that alone is enough to change investor behaviour in the period ahead.
