S&P 500 Hits Record
What happened last week?
The S&P 500, Dow and Nasdaq surged by 3.44%, 3.82%, and 4.25%, respectively. US equities reached new record highs driven by confirmation of a US-China trade deal, easing restrictions on rare earths, a ceasefire in the Israel-Iran conflict, and the removal of the Section 899 “retaliatory tax” from the One Big Beautiful Bill Act (OBBBA).
During this holiday-shortened week, investors will focus on the June jobs report on Thursday. Economists expect June payrolls to slow to 110K from May’s 139K level while the unemployment rate is expected to tick up to 4.3%.
3 Things to Know
US Markets Reach New Highs
US equities reached new record highs driven by confirmation of a US-China trade deal, easing restrictions on rare earths, a ceasefire in the Israel-Iran conflict, and the removal of the Section 899 “retaliatory tax” from the One Big Beautiful Bill Act.
The Fed Is Divided Over the Timing of Rate Cuts
Chair Powell reiterated during his congressional testimony that the Fed will remain on hold until they can better determine tariff impacts on inflation while two Trump-appointed Fed governors have been arguing for a July cut.
Investors may be viewing this public debate as a signal that regardless of exactly when the Fed cuts over the next 18 months, the Fed may have a much more dovish Chair starting in mid-2026.
We would expect that if tariff inflation does not materialize during the summer, the Fed will recommence a cutting cycle no later than September, which will propel intermediate duration bond prices beyond this year’s gains.
But investor concerns over the new US budget bill’s impact on the fiscal deficit combined with increased Treasury issuance this fall after the debt ceiling is increased may prevent longer-term yields from moving significantly lower absent a marked economic slowdown.
Risk-on for Now, but We’re Wary of Equity Market Complacency
Equities are navigating headline risk with surprising resilience. Our latest readings on earnings preannouncements, guidance, and revisions suggest that management teams are not as cautious heading into 2Q reporting season as they were in 1Q.
While uncertainty and anxiety feel much lower than the start of the quarter (following the initial tariff shock), we still believe that the range of outcomes on earnings is very wide in 2025.
During earnings season, we will be particularly focused on management commentary on capital expenditure and hiring plans.
See our weekly CIO Strategy Bulletin for more details