The Case for Optimism Amid the Chop
Markets in 2025 have delivered no shortage of volatility. Yet beneath the daily swings driven by geopolitical tensions, tariff fears, and shifting sentiment lies a foundation of corporate fundamentals that remains remarkably strong. Operating margins sit at historic highs, earnings growth is running in the mid-double digits, and companies across every sector are realizing genuine productivity improvements thanks to artificial intelligence and other emerging technologies. The outlook for the next three to five years, despite the noise, is decidedly positive.
Buying From Eager Sellers
The most effective strategy during periods of market turbulence is deceptively simple: buy high-quality names during pullbacks and trim positions when they become overweighted after strong runs. This disciplined approach has proven its worth in recent months. During the DeepSeek-driven selloff, adding to positions in names like Palantir at $88, Nvidia at $108, and Tesla at $240 turned out to be excellent decisions — even accounting for subsequent pullbacks. The lesson is evergreen: it is always uncomfortable to buy during a downturn, but that discomfort is precisely what creates opportunity.
More recently, the focus has shifted toward software. Positions have been added in Palantir, CrowdStrike, Microsoft, and ServiceNow — names that were punished alongside the broader market but whose long-term trajectories remain intact. The so-called "SaaS apocalypse" narrative is overblown. AI will handle part of the workload, but software will handle the rest. These are not competing forces — they are complementary ones.
Microsoft's Comeback Arc
Microsoft presents a particularly compelling case study. Under savvy leadership, the company is undergoing an AI reset — a strategic reboot designed to recapture momentum after falling behind despite being an early leader in AI integration. This pattern is not without precedent. Just 18 months ago, Google was widely considered dead in the water, trading as a value stock and even appearing in the Russell 1000 Value Index. Since then, it has rallied nearly 100%. Microsoft's current position echoes that setup, and the leadership has the track record to execute a similar turnaround.
The Oil Question and Geopolitical Catalysts
Oil remains a critical variable. With diplomatic efforts intensifying around Iran — including reports of a 15-point plan with agreement on key issues including nuclear weapons — the possibility of a resolution that reopens the Strait of Hormuz could serve as a powerful catalyst. A de-escalation in the Middle East would likely push oil prices lower and remove a significant overhang from the market, potentially triggering a melt-up to new highs.
It is worth keeping perspective on oil prices. Crude was at $122–$124 per barrel in 2022 when Russia invaded Ukraine. The current environment, while concerning, is not unprecedented. Moreover, domestic oil producers have become significantly more productive, achieving higher output with fewer rigs and fewer workers. The structural efficiency gains in the energy sector suggest that short-term price shocks are unlikely to cause lasting economic damage.
Interest Rates: Context Matters
The 10-year Treasury yield's move from 3.98% to 4.40% has rattled bond traders, but context is essential. During the productivity-driven market of the 1990s, the Fed funds rate sat at 5% and the 10-year averaged between 7% and 8% for the entire decade — and the economy thrived. The question is not whether rates are higher than recent memory, but whether companies can still generate earnings growth at these levels. The answer is yes. Many companies now operate with fortress balance sheets and actually benefit from a higher-rate environment.
Beyond Big Tech: Broadening the Portfolio
While technology remains a core holding, the smartest positioning right now involves diversification beyond the mega-cap tech names. The largest overweight relative to the S&P 500 is in industrials, followed by consumer discretionary and financials. Names like Deere in industrials, TJ Maxx and Ulta in consumer discretionary, and American Express, Visa, and Goldman Sachs in financials provide balance and exposure to sectors where AI-driven productivity improvements are just beginning to take hold.
The consumer, meanwhile, remains resilient. Employment is strong, and fiscal stimulus — including $150 billion in increased tax refunds to lower-income taxpayers through recent legislation — is providing additional spending power. People spend because they have jobs, and the labor market continues to deliver.
The Entrepreneurial Surge
One of the most underappreciated signals of economic health is the surge in new business applications, which have reached their highest levels since the pandemic era. This wave of entrepreneurship suggests that the American appetite for risk-taking and self-employment is alive and well. It is a leading indicator of economic dynamism that tends to be overlooked in favor of headline-grabbing macro data.
A Measured Outlook
After three consecutive years of 20%-plus returns for the S&P 500, expectations for this year should be tempered — high single-digit to low double-digit returns would represent a solid outcome in a midterm election year. The real story, however, is the multi-year runway ahead. AI-driven productivity gains are spreading from technology companies to industrials, pharmaceuticals, financial services, and beyond. Virtually every major company now has an AI initiative demonstrating measurable improvements in either cost reduction or revenue growth.
The strategy is clear: own the high-quality names with strong management teams, use volatility as an opportunity to add positions at attractive prices, and maintain a diversified portfolio that captures productivity gains across the entire economy. Buy from eager sellers. Sell to eager buyers. And stay focused on fundamentals in a market that too often gets distracted by the headlines.