The predictability of investor behavior can feel almost tedious to anyone who closely follows market activity. Major U.S. indices are wrapping up a third consecutive calendar year of double-digit annual gains, with the S&P 500 up 76.52% and the NASDAQ soaring 119.4% since January 1, 2022. Hopefully, relentless negative messaging from the major media outlets did not keep you on the sidelines and prevent you from participating in these solid gains over the past three years.

Ironically, investors tend to grow most uneasy during periods of steady progress. Investor psychology often resembles that of a lifelong pessimist who is constantly bracing for the “other shoe to drop.” With such an overriding pessimistic mindset, it takes very little to send investors rushing for the exits. When institutional investors join the selling, what follows is nothing short of a stampede, as fear overtakes logic and profitable companies are indiscriminately sold.

The year 2025 began with investors already in a cautious, pessimistic mood following a strong 2024. Analysts attributed the mild downturn that started on the first trading day of the year to concerns over continued U.S. economic growth, the ongoing war in Ukraine, and uncertainty surrounding potential new policies under President Trump. By Valentine’s Day, selling pressure intensified among both institutional and retail investors as more details emerged regarding tariff policies under consideration.

All major U.S. indices finished the first quarter in negative territory, with the NASDAQ declining -10.42% and the S&P 500 down -4.92%. The lone exception was the S&P 500 Bond Index, which ended the quarter with a gain of 2.21%.

Investor's worst fears regarding tariffs were fully realized on April 2, when President Trump held a post-market press conference from the Rose Garden announcing proposed tariff policies affecting more than 90 countries (promoted as “Liberation Day.”) The market’s reaction was swift and visceral as the overnight futures market was indicating massive selling the next trading day.

Indeed, investors opened the next day with panic-driven selling that accelerated throughout the day amid fears that the administration had overnight reshaped global markets for the worse. The selling plummeted the major indices, with both the S&P 500 and NASDAQ entering bear markets with YTD declines of -21.45% and -20.94% respectively, by April 8.

Investor panic selling due to President Trump’s proposed tariff policy was clearly an overreaction. The proposed tariffs still required contracts executed with each country, which took months to finalize. As we now know, the negotiations and final terms with most countries, including China, Russia, Japan, and the UK, resulted in vastly different arrangements for tariff tax on imports and exports than what President Trump originally announced.

The Wall Street Journal reiterated investor overreaction to the proposed tariff policy. The article by Chao Deng and Drew An-Pham titled “Why Everyone Got Trump’s Tariffs Wrong” stated:

“In the days following 'Liberation Day,' the contrast between Trump’s optimism and more dire predictions from trade experts and economists was stark.

As businesses and consumers tried to make sense of the mixed messages, the president doubled down on promises he’d made during his 2024 presidential campaign. “The markets are going to boom, the stock [market] is going to boom, the country is going to boom,” he said on April 3.

Economists and business leaders dialed up predictions of a fallout. BlackRock’s Larry Fink said, “Most CEOs I talk to would say we are probably in a recession right now.” JP Morgan Chase said a global recession was even likely.

An economic collapse hasn’t materialized. Neither has an economic revival.

A lot of federal data is delayed, but the numbers so far show the U.S. economy has held up. The odds of a recession in the coming year have fallen below 25%.”

As quickly as the panic selling started on April 3, it suddenly reversed on April 9 to start a robust recovery rally. Unfortunately, many retail investors are not as nimble or attentive as professionals. Many missed the market rebound by holding their account in a money market due to fears of declining stock prices. The major indices bounced back, and by June 2, the S&P 500 and NASDAQ were back in the black for the year and ended the second quarter with YTD gains of 5.5% and 5.48% respectively.

As we have mentioned in many previous UPdates, the small and mid-cap indices are the exception to this rally since 2023. Both the S&P 400 (mid-cap) and S&P 600 (small-cap) still had negative returns for this year through June 30, 2025, although they both have slight gains YTD through yesterday.

It is also worth noting that this rally for the S&P 500 and NASDAQ remains very technically robust. Below is a chart of the S&P 500 with its 50 Day Moving Average (DMA) and 200 DMA since January 2023. The index is in the upper range of the current uptrend channel, identified by the blue high and low trend lines. The index is at its 50 DMA (orange line) and well above its 200 DMA(black line). Although the index did drop below the low trend line in April, it was brief, and the 200 DMA stayed above the low trend line. Also, both the upper and lower trend lines are in positive upward inclination. At this point, we do not see the current positive market trend for the S&P 500 in danger.

The same is true for NASDAQ. Below is a chart of the NASDAQ with its 50 DMA and 200 DMA since January 2023. The index is in the upper range of the current uptrend channel, identified by the blue high and low trend lines. The index is at its 50 DMA (orange line) and well above its 200 DMA (black line). Although the index did drop below the low trend line in April, it was brief, and the 200 DMA stayed above the low trend line. Also, both the upper and lower trend lines are in positive upward inclination. At this point, we do not see the current positive market trend for NASDAQ in danger.

What Does This Mean to Me?

We maintain our favorable outlook on the U.S. economy and the stock market. Since 2020, investors have consistently favored large-cap and technology sectors, and we see no meaningful evidence that this investment preference is changing. Since October 28, the major indices have largely traded sideways as investors have moderated the pace of new allocations to equities.

Periods of slower market momentum are often accompanied by a resurgence of negative commentary, with increased focus on themes such as overvaluation and speculative bubbles. The key question is whether the recent pause in the market rally reflects genuine overvaluation concerns or is simply the result of routine portfolio rebalancing tied to year-end tax planning and other non-market factors.

We believe the latter explanation is more likely. There is little evidence of a slowdown in artificial intelligence investment. To be sure, the AI sector exhibits elements of a circular economy, in which leading companies drive revenue growth in part by purchasing each other’s technologies. Jonathan Weil illustrated this dynamic effectively in his October 22, 2025, Wall Street Journal article,“Is the Flurry of Circular AI Deals a Win-Win—or Sign of a Bubble?”

As shown in his analysis, spending among these companies remains robust, with billions of dollars committed across the ecosystem. A true bubble would emerge only if one or more key participants in this circular economy were to meaningfully reduce or halt their spending, for which we currently see no indication.

At this stage, there appears to be no shortage of demand for AI-related chips and products. Investors around the world continue to commit billions of dollars to these companies, fueling significant growth across the sector. That said, the risks are real. AI company valuations can decline sharply at the first credible sign of slowing momentum.

Ultimately, the billions invested in OpenAI and other AI-focused companies must translate into sustainable profits. If investors begin to question the likelihood of earning a return on their capital, or even the return of their capital, the dynamic changes quickly. History offers a clear precedent: the 2000 dot-com bust was triggered in part when investors stopped funding technology companies that consistently failed to generate profits.

Earlier this year, Sam Altman stated that billions more need to be invested in his company to build more data centers. I got the following from Sam Altman’s ChatGPT by searching “OpenAI loss projections” :

Projected Losses & Cash Burn (2025–2029)

• Significant losses expected through 2028: Public filings and reporting indicate OpenAI plans to continue reporting large annual net losses through 2028 as it invests heavily in infrastructure and AI development. Fortune

• Cash burn acceleration: Recent financial disclosures suggest OpenAI may burn upwards of billions annually — estimates include an $8 bn loss in 2025 and a forecast showing cumulative losses reaching into the tens of billions by decade’s end. Wikipedia

• Internal projections (reported by third parties) show total cumulative losses could reach ~$115 billion by 2029 if the company maintains current spending levels. Binance

📈 Revenue Growth vs. Profitability Timeline

• Revenue growth ambitions: Altman has publicly stated that OpenAI’s annual revenue is already above $13 billion and that the company could reach $100 billion in revenue by 2027. MLQ

• Profitability timeline: Despite strong revenue growth projections, Altman and reporting indicate that OpenAI does not expect to be profitable until around 2030 as it continues to invest heavily in R&D, data centers, chips, and other infrastructure.

No profits until 2030 and losses of $115 billion by 2029? Waiting five to seven years for a return on their capital seems like a big ask.

I prefer Nvidia. According to ChatGPT, Nvidia’s free cash flow is projected to be:

Estimated Nvidia FCF by Fiscal Year (in USD billions):

• 2025 :~ $60.8B (actual/estimate)

• 2026: ~ $96.5 B – $98.8 B

• 2027 :~ $143 B – $144.5 B

• 2028: ~ $180B – $200B

In summary, the tech bubble will burst, but probably not for a couple of years. In the meantime, the US economy is a massive society with many facets that are not dependent on AI. As mentioned, we maintain our favorable view of the US economy and stock market.