Our bottom-up approach to a top-down crisis | U.S. equity market commentary 2Q 2025
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
This report explains how Oakmark used a 'bottom-up' approach (picking stocks based on company value, not the economy) during the 2025 tariff panic. The S&P 500 had its shortest bear market ever—just 57 days from the April 8 low to a new high. Oakmark actively traded nearly a third of its portfolio, buying stocks like Nike and Amazon (down 28%) and selling stocks that barely fell (down 2%). The bought stocks rebounded 33%, beating the market. The lesson: market panic creates pricing mistakes—buying when others sell can pay off, if you focus on value and manage risk. It also shows how to use volatility to harvest tax losses.
Oakmark's Q2 2025 U.S. equity commentary notes that while the S&P 500 rose 6% in the first half of the year, the market experienced the shortest bear market in history—just 57 trading days from hitting a -20% low on April 8 to a new high on June 26 (the median since 1945 is nearly two years). The re
Theme and Background
This chapter reviews the extreme volatility in the U.S. stock market during the first half of 2025: the S&P 500 rose 6% over the six-month period but experienced the shortest bear market in history—only 57 trading days from its -20% low on April 8 to a new high on June 26 (the median duration of 12 bear markets since 1945 is nearly two years). The report focuses on how Oakmark, amid the panic triggered by the "Liberation Day" tariff shock, executed large-scale portfolio adjustments using a bottom-up stock selection framework.
Core Thesis
The author's central argument is: Early bear markets create valuation dislocations driven by panic, presenting the optimal entry point for value investing. The report emphasizes that during market panics, stock prices are typically driven by risk aversion rather than company fundamentals, creating unusually wide valuation spreads that compensate for uncertainty. The counterintuitive insight is that active trading in the early stages of a bear market (rather than after the bottom is confirmed) has historically been a key period for Oakmark to generate excess returns.
Key Arguments and Data
- Market Rhythm: The S&P 500 fell 20% from its February 19 peak to its April 8 low, then rebounded to a new high within 25 trading days, completing the entire cycle in just 57 trading days.
- Portfolio Adjustment Scale: The Oakmark Fund adjusted nearly one-third of its positions within 10 weeks after "Liberation Day," with trading activity five times its normal level.
- Buys: Added Nike and Amazon, increased positions in Airbnb, Carlyle Group, and GE Healthcare. These stocks had fallen an average of 28% from their February peaks.
- Sells: Exited Kroger (reached sell target price), reduced positions in AIG Group, Corteva, CVS, and Kenvue. These stocks fell an average of only 2% (compared to the S&P 500's 20% decline over the same period).
- Trading Results: The purchased stocks almost fully reversed their declines, significantly outperforming the sold stocks (as shown in the accompanying chart in the original text).
- Keurig Dr. Pepper Case: Bought at $31 in January, peaked at $33 on February 19, and rose to $34 on the April 8 market bottom (counter-trend rally). The report found its appeal diminished and began selling; when the S&P 500 hit a new high, KDP fell to $33, prompting a re-entry.
- Tax Management: Utilized the brief April window for full-year tax-loss harvesting, expecting zero capital gains distributions for all funds in 2025 (except the Oakmark International Small Cap Fund).
The 2025 S&P 500 bear market recovered to a new high in just 57 trading days, far faster than the median recovery time of nearly two years for bear markets since 1945. The chart shows the actual trajectory (blue line) significantly outperforming the historical median bear market path (green dashed line).
Companies/Assets Involved
| Company/Asset | Role | Key Data | Direction |
|---|---|---|---|
| Nike | New Buy | Bought after 28% decline from Feb peak | Bullish |
| Amazon | New Buy | Bought after 28% decline from Feb peak | Bullish |
| Airbnb | Increased Position | Bought after 28% decline from Feb peak | Bullish |
| Carlyle Group | Increased Position | Bought after 28% decline from Feb peak | Bullish |
| GE Healthcare | Increased Position | Bought after 28% decline from Feb peak | Bullish |
| Kroger | Exited | Reached sell target price | Bearish |
| AIG Group | Reduced Position | Near sell target, fell only 2% | Bearish |
| Corteva | Reduced Position | Near sell target, fell only 2% | Bearish |
| CVS | Reduced Position | Near sell target, fell only 2% | Bearish |
| Kenvue | Reduced Position | Near sell target, fell only 2% | Bearish |
| Keurig Dr. Pepper | Swing Trade | Bought at $31 → Sold at $34 → Re-bought at $33 | Neutral/Swing |
During the market decline from February to April 2025, stocks bought by the Oakmark Fund fell an average of 28%, but rebounded 33% after April, significantly outperforming the S&P 500's 25% gain and the 11% gain of the sold stocks.
Investment Insights
- Leverage Panic, Don't Avoid It: When markets experience systemic declines due to macro shocks (tariffs, inflation, pandemics), actively seek valuation dislocation opportunities rather than passively waiting. Oakmark's experience shows that the early stages of a bear market (not the bottom) offer the best window for value discovery.
- Establish a Scenario Analysis Framework: During heightened uncertainty, require analysts to rebuild earnings models under a weak economic scenario and assign tariff risk ratings (1–5) to ensure portfolio adjustments do not inadvertently increase risk exposure.
- Focus on Relative Valuation Spreads: Buy stocks that have fallen far more than the market (-28% vs. S&P -20%) and sell stocks that have fallen far less (-2% vs. S&P -20%), capitalizing on the divergence between individual stocks and the market during panic.
- Tax Optimization Timing: Use periods of extreme market volatility for full-year tax-loss harvesting, which can reduce capital gains distributions and improve after-tax returns.