A Historic Turnaround – A Deep Dive into the April–May 2025 Recovery
April and May 2025 delivered one of the most dramatic reversals in recent equity market history. Following a sharp sell-off triggered by renewed macro uncertainty—including concerns over global trade tensions, sticky inflation data, and hawkish tones from central banks—the S&P 500 bottomed around 4,850 on April 5, down over 10% from its late-March peak. What followed, however, was a swift and broad-based rebound that caught many investors off guard.
By 17 May, the index had surged past 5,450, marking a gain of more than 12% in just six weeks. This move was driven by stronger-than-expected corporate earnings in key sectors such as tech, financials and industrials, as well as a notable shift in investor expectations regarding interest rate cuts in the second half of the year. Signs of disinflation in April CPI data and a de-escalation in geopolitical tensions helped further restore market confidence.
In parallel, the VIX—the market’s “fear gauge”—underwent a historic collapse. From a peak above 50 on 8 April, it fell below 18 by mid-May. Such a violent contraction in implied volatility is rare and typically associated with inflection points in sentiment. This episode marked one of the fastest decompressions in the VIX’s history, signalling a rapid transition from panic to complacency—or, more constructively, to regained stability.
However, the recent trade policy announcements by Donald Trump—reviving the prospect of aggressive tariffs on key sectors—serve as a reminder that volatility is far from over. Geopolitical risks and electoral uncertainty in the U.S. remain potent market drivers. While the recent rally has been impressive, the path ahead is likely to remain uneven and reactive to policy signals.

Europe – SAP Takes the Lead
As of May 2025, Europe’s top market-cap rankings have shifted, driven by sectoral trends. SAP, the German enterprise software firm, has surged to the top, propelled by strong growth in cloud computing and AI integration. Its market cap climbed to €313 billion, overtaking Denmark’s Novo Nordisk.
Novo Nordisk, once the leader, saw its value drop due to disappointing trial results for a new obesity drug—highlighting the volatility in biotech despite the sector’s rapid growth.
Meanwhile, in luxury, LVMH exited the top five, supplanted by Hermès. The luxury sector is facing headwinds from slowing global demand and changing consumer trends, with investors favouring brands with stronger pricing power and exclusivity.
ASML and Nestlé round out the top five, benefiting from sustained demand in semiconductors and consumer staples, respectively. The reshuffling underscores a broader pivot toward tech resilience and away from more cyclical sectors like luxury.

Buy Now, Pay Later – Fasten your Seatbelt
The Buy Now, Pay Later (BNPL) boom has officially hit turbulence. Klarna, once the poster child of the sector, reported a $99 million net loss in Q1 2025, more than doubling its loss from the same period last year. The culprit? A sharp rise in credit defaults, with loan losses jumping 17% year-over-year to $136 million. Despite aggressive growth in the US market and partnerships with names like Walmart and DoorDash, Klarna’s rapid expansion strategy has collided with consumer credit fatigue and weakening repayment behaviour.
Klarna’s experience is a cautionary tale: scaling unsecured lending models in a lightly regulated environment can backfire quickly when macro tailwinds shift. The Klarna episode underscores the need to scrutinize credit quality, scalability, and regulatory oversight in fintech models.
Against this backdrop, it’s worth noting that the broader US consumer remains fundamentally sound. After 25 consecutive months of negative real wage growth, average wages have now outpaced inflation for 24 months in a row — a meaningful turning point. From March 2024 to March 2025, nominal wages grew 3.2%, while inflation clocked in at 2.4%, providing real income growth and restoring some purchasing power.
While there are headwinds — including resumed student loan repayments and still-elevated costs of living — the resilience of household balance sheets is a positive signal. Consumer confidence has wavered, but the core economic driver remains intact, particularly in the middle- and high-income segments.

Note: Data is seasonally adjusted.
Algebris Investments’ Global Equity Team
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