A Bull Market in Uncertainty

In Brief

Tariffs have introduced an unexpected fiscal shock that could be a drag on GDP growth and earnings.
Several important indicators show a surge in uncertainty and bearishness—historically these periods are followed by resilient recoveries over time.
We believe active management and a focus on high-quality companies with durable competitive advantages are a prudent approach in this environment.

Download the PDF version of this insight

The bull market in “animal spirits” has given way to a bull market in uncertainty after worse-than-expected tariff announcements. This new unexpected potential fiscal drag is causing Wall Street economists to raise the probability of a recession, which pressures the forecast earnings growth that fueled the bull market that began in 2023. Here are a few things investors should consider in light of the recent market volatility.

The new administration’s actions have created a surge in policy and economic uncertainty as measured by the Baker, Bloom, and Davis uncertainty index.¹ This index has been in production for 40 years and last reached such heights during March 2020. Following periods of elevated levels of policy uncertainty, the U.S. equity market, represented by the S&P 500 Index^®, has provided above-average forward returns, shown in Figure 1.

Figure 1. S&P 500 Index Forward Returns Following Periods of Elevated Uncertainty

U.S. Economic Policy Uncertainty Index level, January 2, 2010–April 6, 2025, (top panel) and S&P 500 Index forward returns following the Economic Policy Uncertainty Index high in each calendar year shown

Line Chart showing S&P 500 Index Forward Returns Following Periods of Elevated Uncertainty

Chart showing policy uncertainly vs the S&P 500

Source: Bloomberg and the Federal Reserve Bank of St. Louis. Data as of April 7, 2025. The Economic Policy Uncertainty Index for the United States is based on daily news coverage and is not seasonally adjusted. It was developed by Scott R. Baker, Nicholas Bloom, and Steven J. Davis. The index measures uncertainty by analyzing the frequency of media articles that discuss economic policy uncertainty. Returns shown are not annualized. The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results. Double-digit returns were achieved by the index primarily during favorable market conditions and may not be sustainable over time. No investor achieved these returns. Due to market volatility, the market may not perform in a similar manner in the future. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Past performance is no indication or guarantee of future performance.

Policy uncertainty has translated into pervasive bearishness. There are many surveys that measure investor sentiment, but the preeminent measure is the Investors Intelligence Bull/Bear Ratio, a survey that has been conducted with a consistent methodology since its inception in 1964. It is unusual for bears to outnumber bulls in this survey: Bears have outnumbered bulls only eight times in the last 15 years.² History shows that whenever bears outnumber bulls, investors have been rewarded with above-average returns over the next six and 12 months. The last two times this threshold was breached was in late 2022, which marked the end of the inflation-induced bear market, and the COVID-induced lows of March 2020.

Figure 2. S&P 500 Index Forward Returns as Sentiment Turns Bearish

S&P 500 Index forward returns in each period when bears have outnumbered bulls

Source: Bloomberg. Data as of April 3, 2025. Returns shown are not annualized. The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results. Double-digit returns were achieved by the index primarily during favorable market conditions and may not be sustainable over time. No investor achieved these returns. Due to market volatility, the market may not perform in a similar manner in the future. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Past performance is no indication or guarantee of future performance.

Finally, what investors are feeling (uncertainty), and what they are saying (sentiment surveys) is showing up in what they are doing. Specifically, the number of stocks trading above their 150-day moving averages has reached extreme levels, shown in Figure 3. When investors are selling indiscriminately, as these measures imply, investors’ returns over the next six and 12 months have been above average.

Figure 3. Percent of Stocks Trading Above 150-Day Moving Average at Extreme Lows

Percent of stocks in the Russell 3000 Index^® trading above 150-day moving average prices, April 9, 2009-April 8, 2025 (top panel), and S&P 500 Index average forward returns when stocks trading above 150-day moving average is below 10% (bottom panel)

Line chart showing Percent of Stocks Trading Above 150-Day Moving Average at Extreme Lows

Source: Bloomberg. Data as of April 8, 2025. Returns shown are not annualized. A moving average calculates the average price of an asset over a specified time period. The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results. Double-digit returns were achieved by the index primarily during favorable market conditions and may not be sustainable over time. No investor achieved these returns. Due to market volatility, the market may not perform in a similar manner in the future. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Past performance is no indication or guarantee of future performance.

Putting it all together, history has shown that equity market volatility has often been followed by resilient recoveries. These periods of anxiety don’t resolve immediately, but the patient, opportunistic investor has historically reaped the benefits over the next six months, 12 months, and 24 months.

We believe Lord Abbett’s active investment portfolios are well positioned for the current environment. A unifying principle for our equity strategies is the emphasis on high-quality companies with durable competitive advantages, led by skilled management teams. This approach spans both growth and value stocks in U.S. and non-U.S. markets.

We have a differentiated approach to identify what we believe are quality investments in that the quantitative metrics we use to define quality are not static. What works to identify quality in a value universe is not the same set of metrics that one should use in a growth universe. Furthermore, the set of metrics in a global or emerging markets universe cannot be the same as what one uses for a U.S.-focused portfolio. Our portfolio teams work closely with our quantitative experts in an effort to make sure that our expression of quality is consistent with the universe that we are interrogating and aligns with our investment philosophies. This is just one of the many ways our investment teams seek to deliver excess returns on behalf of our clients.

Insight

Stocks: A Guidebook for the Months Ahead

We think the bullish factors supporting the market will continue in the first half of 2025.

LGLAX

Class A

Growth Leaders Fund

The Lord Abbett Growth Leaders Fund Class A seeks to deliver long-term growth of capital by investing primarily in stocks of U.S. companies. Learn more.

Learn More

LAMAX

Class A

Dividend Growth Fund

The Dividend Growth Fund invests primarily in stocks of large U.S. companies that have a history of increasing their dividends. Learn more.

Learn More

About the Author

Matthew R. DeCicco, CFA

Partner & Director of Equities

Matthew DeCicco is responsible for directing Lord Abbett’s equity investment activities, including portfolio management and equity research. He also is a portfolio manager on the Innovation Growth Equity team and is responsible for contributing to the management of the firm’s growth equity strategies.

¹Baker, Scott R., Bloom, Nick and Davis, Stephen J., Economic Policy Uncertainty Index for United States [USEPUINDXD], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USEPUINDXD, April 8, 2025.

²deGraaf’s Daily, Renaissance Macro Research, LLC, March 13, 2025

Important Information

Unless otherwise noted, all discussions are based on U.S. markets, U.S. monetary and fiscal policies, and U.S. dollar-denominated index and return data.

Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.

No investing strategy can overcome all market volatility or guarantee future results.

The value of investments and any income from them are not guaranteed and may fall as well as rise, and an investor may not get back the amount originally invested. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.

Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

Specific investments described herein do not represent all investment decisions made by Lord Abbett. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future.

Mentions of specific companies are for reference purposes only and are not meant to describe the investment merits of, or potential or actual portfolio changes related to, securities of those companies.

Equity Investing Risks

The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of companies and/or sectors in the economy. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial. Value investing involves the risk that the market may not recognize that securities are undervalued, and they may not appreciate as anticipated. Smaller companies tend to be more volatile and less liquid than larger companies. Small cap companies may also have more limited product lines, markets, or financial resources and typically experience a higher risk of failure than large cap companies.

Fixed-Income Investing Risks

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. High yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price.

The credit quality of fixed-income securities in a portfolio is assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.

This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The views and opinions expressed are as of the date of publication, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. Lord Abbett cannot be responsible for any direct or incidental loss incurred by applying any of the information offered.

This material is provided for general and educational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Lord Abbett product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice.

Certain information contained herein has been obtained from third party sources and such information has not been independently verified by Lord Abbett. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by Lord Abbett or any other person. While such sources are believed to be reliable, Lord Abbett does not assume any responsibility for the accuracy or completeness of such information. Lord Abbett does not undertake any obligation to update the information contained herein as of any future date.

Please consult your investment professional for additional information concerning your specific situation.

Glossary & Index Definitions

Bullish refers to an optimistic outlook and to a belief that certain investments may potentially increase in value in the future. Bearish refers to a pessimistic outlook and generally refers to a belief that certain investment prices may fall in the future.

The Economic Policy Uncertainty Index for the United States is based on daily news coverage and is not seasonally adjusted. It was developed by Scott R. Baker, Nicholas Bloom, and Steven J. Davis. The index measures uncertainty by analyzing the frequency of media articles that discuss economic policy uncertainty.

An exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets and can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks.

The Investors’ Intelligence Survey is conducted by Investors Intelligence and is a weekly poll of investment advisors as to whether they are bullish, bearish, or neutral on the stock market.

Bloomberg Index Information

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg owns all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, shall not have any liability or responsibility for injury or damages arising in connection therewith.

Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

Important Information for U.S. Investors

Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.

FOR MORE INFORMATION ON ANY LORD ABBETT FUNDS, CONTACT YOUR INVESTMENT PROFESSIONAL OR LORD ABBETT DISTRIBUTOR LLC AT 888-522-2388, OR VISIT US AT LORDABBETT.COM FOR A PROSPECTUS, WHICH CONTAINS IMPORTANT INFORMATION ABOUT A FUND'S INVESTMENT GOALS, SALES CHARGES, EXPENSES AND RISKS THAT AN INVESTOR SHOULD CONSIDER AND READ CAREFULLY BEFORE INVESTING.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product, or service may be appropriate for your circumstances.

Important Information for non-U.S. Investors

Note to Switzerland Investors: In Switzerland, the Representative is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the Paying Agent is Bank Vontobel Ltd., Gotthardstrasse 43, CH- 8022 Zurich. The prospectus, the key information documents or the key investor information documents, the instrument of incorporation, as well as the annual and semi-annual reports may be obtained free of charge from the representative. In respect of the units offered in Switzerland, the place of performance is at the registered office of the representative. The place of jurisdiction shall be at the registered office of the representative or at the registered office or domicile of the investor.

Note to European Investors: This communication is issued in the United Kingdom and distributed throughout the European Union by Lord Abbett (Ireland) Limited, UK Branch and throughout the United Kingdom by Lord Abbett (UK) Ltd. Both Lord Abbett (Ireland) Limited, UK Branch and Lord Abbett (UK) Ltd are authorized and regulated by the Financial Conduct Authority.

A decision may be taken at any time to terminate the arrangements made for the marketing of the Fund in any EEA Member State in which it is currently marketed. In such circumstances, Shareholders in the affected EEA Member State will be notified of this decision and will be provided with the opportunity to redeem their shareholding in the Fund free of any charges or deductions for at least 30 working days from the date of such notification.

Lord Abbett (Middle East) Limited is authorised and regulated by the Dubai Financial Services Authority (“DFSA”). The entire content of this document is subject to copyright with all rights reserved. This research and the information contained herein may not be reproduced, distributed or transmitted in any jurisdiction or to any other person or incorporated in any way into another document or other material without our prior written consent. This document is directed at Professional Clients and not Retail Clients. Any other persons in receipt of this document must not rely upon or otherwise act upon it. This document is provided for informational purposes only. Nothing in this document should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction. Nothing contained in this document constitutes an investment, an offer to invest, legal, tax or other advice or guidance and should be disregarded when considering or making investment decisions.

Note to Singapore Investors: Lord Abbett Global Funds I plc (the “Company”) and the offer of shares of each sub-fund of the Company do not relate to a collective investment scheme which is authorized under Section 286 of the Securities and Futures Act, Ch. 289 of Singapore (“SFA”) or recognized under Section 287 of the SFA, and shares in each sub-fund of the Company are not allowed to be offered to the retail public. Pursuant to Section 305 of the SFA, read in conjunction with Regulation 32 of and the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (the “Regulations”), the Lord Abbett Global Multi-Sector Bond Fund, the Lord Abbett High Yield Fund, the Lord Abbett Short Duration Income Fund, the Lord Abbett Ultra Short Bond Fund, the Lord Abbett Climate Focused Bond Fund, the Lord Abbett Emerging Markets Corporate Debt Fund and the Lord Abbett Multi Sector Income Fund have been entered into the list of restricted schemes maintained by the Monetary Authority of Singapore for the purposes of the offer of shares in such sub-funds made or intended to be made to relevant persons (as defined in section 305(5) of the SFA), or, the offer of shares in such sub-funds made or intended to be made in accordance with the conditions of section 305(2) of the SFA. These materials do not constitute an offer or solicitation by anyone in Singapore or any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

Note to Hong Kong Investors: The contents of this material have not been reviewed nor endorsed by any regulatory authority in Hong Kong. An investment in the Fund may not be suitable for everyone. If you are in any doubt about the contents of this material, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser for independent professional advice. The Fund is not authorised by the Securities and Futures Commission ("SFC") in Hong Kong pursuant to Section 104 of the Securities and Futures Ordinance (Cap 571, Laws of Hong Kong) ("SFO"). This material has not been approved by the SFC in Hong Kong, nor has a copy of it been registered with the Registrar of Companies in Hong Kong and, must not, therefore, be issued, or possessed for the purpose of issue, to persons in Hong Kong other than (1) professional investors within the meaning of the SFO (including professional investors as defined by the Securities and Futures (Professional Investors) Rules); or (2) in circumstances which do not constitute an offer to the public for the purposes of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32, Laws of Hong Kong) or the SFO. This material is distributed on a confidential basis and may not be reproduced in any form or transmitted to any person other than the person to whom it is addressed.