2025 Arbitrage Market Wrap - Part 1

If 2025 had one defining feature, it was this: headline risk became tradable again. The market did not just react to narratives; it repriced entire regimes in days, then flipped right back into risk-on as soon as the pressure eased. Here are the 10 moments that mattered most.

1. "Liberation Day" Tariffs: waterfall selloff, then a historic rip higher

April was the year's stress test. After President Trump's April 2 "Liberation Day" tariff announcement, markets went into full risk-off mode, with Reuters noting roughly $5 trillion in S&P 500 market cap wiped out in just two days. Then the tone flipped. Reuters captured the other side of the coin when Trump announced a 90-day pause on some tariffs, sparking one of the biggest "relief" days in market history. By early May, outlets were already talking about the S&P 500 wiping out much of the tariff-driven drawdown as trade-war pressure cooled. 

2. NVDA becomes the symbol of the AI era (and hits the $4T milestone)

Whether you love it or hate it, Nvidia became the market's scoreboard for "AI risk-on." In July, Reuters reported Nvidia briefly reached a $4 trillion market cap, the first company to hit that mark. When one stock becomes "the trade," it also becomes the place where sentiment breaks first. (We saw that dynamic reappear any time "AI bubble" chatter resurfaced.)

3. The US dollar breaks down to levels we haven't seen in a while

The dollar was not just a macro chart this year; it was a performance driver. Morgan Stanley noted the dollar fell about 11% in 1H 2025, its biggest first-half decline since 1973, with the DXY sliding hard from January through June. J.P. Morgan also highlighted the same "worst in 50+ years" first-half dynamic. Many speculate that this has to do with de-globalization and investors moving out of US markets. We will see if the GENIUS Act can revive the dollar in 2026.

4. Global markets finally outshine the S&P (in local terms, and even more in USD terms)

One of the more underappreciated stories: international equities had real moments of leadership. Reuters pointed out that with the S&P 500 up about 15% (at the time), the MSCI Asia ex-Japan was up nearly 25%, and Germany's DAX and UK's FTSE 100 were up around 20%. Morningstar framed 2025 as a year where the tactical and strategic case for international exposure finally showed up on the tape. When the dollar weakens, global diversification stops being a theory and starts showing up in returns. Is this the new normal or is the US still where the gains will be?

5. Energy and commodities: the year inflation trades quietly mattered again

While AI stole the spotlight, real assets had a strong year in the background. Energy and commodities kept reacting to the things markets can't ignore - geopolitics, supply constraints, and lingering inflation risk. Gold was the cleanest example, but the bigger story was that commodities acted like trend assets again, not just "hedges."

Come back tomorrow for market events #6-10!