Bitcoin reached yet another new all-time high, and has continued to follow its 4-year cycle very closely.

The performance leaderboard continues to be dominated by bitcoin and the Mag 7, with Treasuries and the dollar at the bottom. It’s so 2025.

While the year-over-year growth rate in trailing earnings seems to have peaked at 10%, margins continue to move higher and are now 13.1% (for the MSCI US index). It’s an impressive performance several months into a new tariff regime, and it goes a long way to explain why valuations have rebounded so swiftly.

Earnings season is now underway, and with 58 companies reporting, 86% are beating estimates by an average 782 bps. The expected growth rate for Q2 earnings has already bounced from 2.5% to 3.3%, and more is likely in the coming few weeks.

Following a 500 bps markdown in the expected growth rate for 2025, earnings are holding up well, and are now being amplified by valuations. For the S&P 500, the trailing P/E-multiple is up 6% year-over-year, while earnings are up 8% and the dividend yield is 1.3%. Add them all up and you get a generous 15% return.

Following the back-and-forth lurch in April, the market has quieted down, with its 4-week rate of change squarely in the middle of the bell curve.

Following the back-and-forth lurch in April, the market has quieted down, with its 4-week rate of change squarely in the middle of the bell curve.

The S&P 500 index continues to recover from its April swoon along the lines of the 1998 LTCM bottom and 2018 Powell Pivot bottom. If those analogs hold, we should continue to see more gains in the months ahead, with the caveat that the year’s worst seasonal period lies straight ahead of us. However, seasonal patterns tend to work “all else being equal,” and if there is one thing we know in 2025, it’s that nothing else is equal.

If the dollar does lose some of its supremacy premium, while global earnings are converging on US earnings and non-US valuations are lower than in the US, it should provide a good backdrop for a prolonged period of mean reversion between US and non-US equities. The two charts below show just how important the currency component can be for investing globally. That’s especially the case for emerging markets, where the USD-based EM index (solid blue) has vastly outperformed the local currency index (dotted line) over the past 25 years. In local currency terms, the MSCI EM index is where the S&P 500 was in the year 2000. For EAFE (non-US developed), that currency difference is much less. For me, that makes EAFE an easier region to say yes to than EM. Either way, the momentum curves in both charts suggest that the long-awaited mean reversion is upon us.

If the Fed is forced back into the bond market to hold down nominal and real rates, the dollar may well lose more of its supremacy premium. Currencies are the release valve for unsustainable fiscal policy, as Japan found out a few years ago. The same is now true for the dollar, which continues to lose strength despite the Fed’s hawkish policy stance.