Fast reading
- S&P 500 Index has risen 25% since hitting a 15-month low on 8 April.
- US private payrolls fell for the first time in more than two years in June as uncertainty hampered hiring.
- The 90-day tariff pause – implemented on 9 April to calm volatile markets – is set to end on 9 July.
The S&P 500 Index hit a new all-time high this week, capping a remarkable rebound from a sell-off sparked by President Donald Trump’s ‘Liberation Day’ tariff announcement in April.
The US blue-chip index has risen 25% since hitting a 15-month low on 8 April1.
The tariffs triggered a surge in volatility across financial markets, and led many economists to moderate their forecasts for global growth. But Trump’s subsequent delays and climbdowns on the more aggressive aspects of his tariff agenda – alongside relatively robust economic data – have helped spur a rapid comeback for US stocks.
Market sentiment has been further boosted over the last week by the US-brokered ceasefire between Israel and Iran – which should ease investor concerns about a potential spike in oil prices – and a US-Vietnam trade deal, which was announced on Wednesday.
Figure 1: The S&P 500 rollercoaster YTD
“The S&P 500’s latest all-time high marks a full recovery from the post-Liberation Day decline, but it has been driven largely by macroeconomic dynamics rather than improved corporate fundamentals,” says Paul Dalton, Investment Director – Equities, Federated Hermes Limited.
Ongoing concerns
A number of concerns remain about the health of the US economy.
US private payrolls fell for the first time in more than two years in June as economic uncertainty hampered hiring, according to the ADP National Employment Report released on Wednesday.
“Sustained and elevated levels of policy uncertainty have weakened business and consumer sentiment and this is increasingly showing up in employment and consumer decision making,” says R.J. Gallo, Head of Municipal Bond Group at Federated Hermes.
Since early May, the yield on the 10-year US Treasury has fluctuated in a narrow range between about 4.20% and 4.60%2 as the market awaits further clarity on a range of issues, Gallo says.
With trillions of US dollars sitting on the sidelines, rate cuts could trigger significant capital flows into equities, potentially fuelling further market gains
The federal funds rate stands at 4.25-4.5%, while US inflation rose less than expected to 2.4% in May.
US Federal Reserve Chair Powell is under a lot of pressure to cut rates amid ongoing speculation that President Trump is seeking to replace him. The next Federal Open Market Committee (FOMC) meeting is scheduled on 29-30 July.
“We believe that US hard data will soon weaken to precipitate a resumption of the long-paused Fed easing and US Treasury yields will move lower in the months to come,” says R.J. Gallo, Head of Municipal Bond Group at Federated Hermes.
Dalton adds: “With trillions of US dollars sitting on the sidelines, rate cuts could trigger significant capital flows into equities, potentially fuelling further market gains.”
Risks remain
Nonetheless risks remain. The 90-day tariff pause – implemented on 9 April to calm volatile markets – is set to end on 9 July. During this window, most country-specific tariffs were put on hold (except for China), while a flat 10% tariff stayed in place for most imports to the US. As the deadline looms, President Trump has hinted he might extend the pause to wrap up trade talks with a number of countries, but the possibility of a resurgence in volatility remains.
Meanwhile, geopolitical tensions remain high and the upcoming earnings season could derail – or boost – investor optimism.
“In the current environment, remaining diversified and maintaining a disciplined focus on fundamentals to navigate any potential shifts effectively will be paramount,” Dalton adds.
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1 Bloomberg as at 3 July
2 Ibid.
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