For a period, the S&P 500’s (^GSPC) movements were largely dictated by overarching macroeconomic factors. However, recent trends suggest a shift towards company-specific performance driving market behavior.

The Era of Macro Dominance

The second quarter began with markets heavily influenced by tariff-related news. Stocks exhibited a high degree of correlation, moving in near lockstep. in April,the one-month correlation of stock movements within the S&P 500 surged to nearly 0.7. This level of correlation had only been observed in two instances over the previous five years: when the Federal Reserve initiated interest rate hikes in 2022 and during the initial phase of the COVID-19 pandemic.

A Shift in the Winds

As trade tensions eased, the dynamics within the S&P 500 began to change. With President Trump scaling back the height of his tariffs on other nations, the correlation between stocks in the S&P 500 has tumbled to about 0.16.

The Rise of Micro Fundamentals

According to piper Sandler, this decline in correlation signals a transition from a macro-driven market to one influenced by company-specific fundamentals. after two months of macro-dominated markets, we’re likely to continue seeing markets, economic outlooks and sentiment stabilize, the firm noted. This suggests a move away from broad market swings triggered by headlines on U.S. trade policy.

Mixed Data,Mixed Views

The current environment is characterized by mixed data and mixed views. This backdrop is expected to keep market correlations low, as stocks are likely to trade more on thier individual merits rather than being uniformly swayed by macroeconomic news.

Differentiating Factors

Remaining macroeconomic concerns are now more likely to differentiate stocks rather than uniformly impact them. Many of the macro fears that remain are more likely to be issues that differentiate stocks rather than dominate all of them, Piper Sandler stated.