US Equities: Room to Run, but Selectivity Matters More

Matt Freund, CFA,  Michael Kassab, CFA

Key Points:

• We believe greater clarity around tariff and tax policies should keep equity valuations elevated in the near term.
• With equities at current levels, we are no longer in an environment where a “rising tide lifts all boats”; individual security selection will be increasingly important.
• Calamos Growth Fund is investing in a breadth of opportunities, including exposure to “Magnificent 7” mega caps as well as emerging companies at the cutting edge of transformative growth themes.

The first half of 2025 was a remarkable testament to the resilience and adaptability of the US economy and equity markets. The markets experienced a brief but notably sharp reaction to the President’s tariff plans, declining almost 20% from first-quarter highs, but quickly rebounded in a classic “V-shaped” recovery. While details about tax and trade policies remain limited, investors were encouraged by indications that worst-case scenarios were being taken off the table.

Importantly, investors are now positioned to gain much-needed clarity on several key policies, including tariff implementation, the “One Big Beautiful Bill” working its way through Congress, and the future direction of Fed policy.

Even as equity markets have begun pricing in positive outcomes to these uncertainties, investors should remember that immediate success is not guaranteed, and the sharp rebound in equity valuations leaves little room for missteps.

That said, we believe favorable resolutions to tariff and tax policies will dramatically reduce uncertainty and allow companies and investors to adjust with confidence to the new landscape. This should provide sufficient positive momentum to keep equity valuations elevated in the near term.

Although the clock is ticking on the 90-day tariff pause set to expire July 9, we believe the most extreme reciprocal tariffs are unlikely to be fully implemented (with the possible exception of China). This should afford companies additional time to adjust their supply chains, ultimately reducing downside risk to corporate earnings.

Despite conflicting headlines, we expect eventual passage of the tax bill, which should provide incremental benefits to workers’ take-home pay and help sustain consumer spending. Simultaneously, the bill should materially reduce regulatory burdens through the “10-for-1” deregulation protocol and provide a framework for long-term productivity growth.

Finally, we believe slowing inflation trends will make it increasingly difficult for the Federal Reserve to continue delaying additional rate cuts. Historically, rate cuts coupled with a healthy job market, solid corporate balance sheets, manageable energy costs, and continued consumer spending have provided an attractive fundamental backdrop for US equity markets.

From a market perspective, with the S&P 500 Index back near all-time highs, we are no longer in recovery mode where “a rising tide lifts all boats.” This makes individual security selection increasingly important for the remainder of the year.

Fortunately, Calamos Growth Fund’s all-cap strategy provides us with ample opportunities to access growth across market caps and sectors. We maintain significant exposure to the Magnificent 7 stocks but are also continuing to add to emerging companies in transformative themes such as cybersecurity, robotics, immunotherapy, and agentic AI.

While we acknowledge that the economy may still encounter short-term turbulence as trade and tax agreements progress—with inevitable starts and stops along the way—we believe the fundamentals of the US economy remain strong. We view any drawdowns as offering long-term investors tactical opportunities to deploy capital among high-quality companies.

Overall, we maintain our positive bias toward growth equities. We will continue focusing on being well-compensated for the risks we undertake and believe this discipline will help generate strong risk-adjusted returns.