When President Trump announced sweeping 10% global tariffs on April 2, 2025, the S&P 500—and by extension the SPDR S&P 500 ETF Trust (SPY)—sold off sharply, with the index plunging 9.5% over two trading days. Investors worried about higher input costs and disrupted supply chains. A 90-day pause on reciprocal duties announced on April 9 ignited a powerful snap-back rally, with the Nasdaq jumping 12.2% in a single session and SPY recouping nearly all its losses within three weeks. By year-end 2025, SPY had fully recovered and then some, closing the year up 17% total return including dividends.

With a trailing yield of roughly 1%, SPY remains the broadest liquid vehicle for S&P 500 exposure but offers limited income compared to high-yield alternatives. Investors using SPY for cash flow must be prepared to weather the next drawdown without relying on distributions to cover expenses. In contrast, some BDCs and closed-end funds yield over 13%, trading at double-digit discounts to NAV. Despite those attractions, SPY’s low expense ratio (0.09%) and monthly liquidity ensure it remains the go-to for a core, set-and-forget allocation.

Although individual stocks like SanDisk and Nvidia outperformed SPY—posting gains of 600% and 41% respectively—SPY delivered a steady 19% total return with dividends reinvested. Its performance paced the broader market’s resilience through tariff shocks, crypto-related drawdowns and Fed policy splits. By capturing gains across all 500 large-caps, SPY avoided the missteps of active managers who missed rebounds or chased volatile rallies, underscoring why passive indexing remains the predominant strategy for most investors.

As SPY hit record highs in late 2025, a handful of megacap tech names accounted for the lion’s share of its gains, leaving many diversified active funds trailing the benchmark. Seven US technology giants comprised over 23% of SPY’s weight by December, squeezing returns for managers constrained by diversification mandates. In the fourth quarter alone, SPY rose 7% while the average large-cap active equity fund lagged by 2 percentage points. This dynamic highlights how SPY’s cap-weighted structure can both boost overall performance and challenge stock-pickers during concentrated rallies.