‘A strange calm' has settled over the markets as investors ignore the risks ahead
Despite significant macro risks ahead—including looming tariffs and weak consumer spending—markets remain buoyant, with the S&P 500 hitting a record high of 6,173.07 and futures rising further. Investors appear to be expecting either a tariff deadline extension or Federal Reserve rate cuts to support stocks.
The S&P 500 set a new record on Friday and S&P futures are up 0.37% this morning. That's interesting because there are clear macroeconomic risks on the horizon, which investors seem to be ignoring—at least for now.
The most obvious unpredictable variable is the looming tariff deadline. President Trump gave the U.S.'s various trading partners until July 9 to reach a deal with the White House, but the president admitted over the weekend that his administration has not managed to reach agreements with most countries. Instead, many of them will simply receive a letter setting a rate of at least 25%, he said.
The effect of those tariffs is already starting to drag on the economy, according to Samuel Tombs and Oliver Allen of Pantheon Macroeconomics: 'The 0.3% fall in consumers' real spending in May and big downward revisions to earlier months mean spending likely rose at an annualized pace of only about 1½% in the first half this year, well below last year's 3% average. Moreover, the lack of momentum recently, looming tariff-driven price hikes, and an imminent deterioration in the labor market all suggest spending will slow further in Q3,' they wrote in a recent research note.
Many investors seem to be expecting that in the event of bad news, either Trump will come to their rescue by extending the tariff deadline or the U.S. Federal Reserve will lower interest rates later in the year. Both scenarios would be good for stocks.
'As we step into the second half of the year, a strange calm has settled in,' Kevin Ford of Convera told clients this morning. 'Major fears have started to fade, and despite all the noise, equity markets are flirting with all-time highs (new ATH for the S&P500). That said, the horizon still looks hazy, and plenty of questions remain unanswered: What about tariffs? If there's one thing we've learned about this administration, it's that deadlines are more like guidelines. Case in point: the July 9 expiration of the 90-day reciprocal tariffs reprieve. Markets aren't holding their breath. Many expect the White House to kick the can down the road again, buying more time for ongoing negotiations with Europe, Japan, and South Korea.'
The Fed might also deliver the interest rate cuts that Trump has demanded.
'The market will focus back on the macro narrative with the interplay between labour market data and Fed policy expectations and increasing attention paid to the potential early appointment of a new Fed Chair. The broad risk on sentiment is leaning on modest and temporary weak growth in 2H25, on the back of payback frontloading and tariffs. The underlying assumption is that the subsequent Fed easing will be enough to trigger a return to trend growth in early 2026,' JP Morgan's Fabio Bassi and his team wrote in a note seen by Fortune.
Here's a snapshot of the action prior to the opening bell in New York:
S&P 500 futures rose 0.37% this morning, premarket.
The S&P 500 closed up 0.52% on Friday, hitting a new record high (6,173).
U.K. and Europe markets were flat in early trading.
Japan's Nikkei 225 was up 0.84%.
The major China indexes were up this morning, as was South Korea, but Hong Kong and India were down.
This story was originally featured on Fortune.com
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
10 minutes ago
- Yahoo
Japanese manufacturers are slightly more optimistic despite Trump tariff worries
TOKYO (AP) — Business sentiment among large Japanese manufacturers has improved slightly, according to a survey by Japan's central bank released Tuesday, although worries persist over President Donald Trump's tariffs. The Bank of Japan's quarterly tankan survey said an index for large manufacturers rose to plus 13 from plus 12 in March, when it marked the first dip in a year. The survey is an indicator of companies foreseeing good conditions minus those feeling pessimistic. Major manufacturers include auto and electronics sectors, whose exports to the U.S. drive the Japanese economy. U.S. auto tariffs are a worry for major manufacturers like Toyota Motor Corp., but some analysts note global auto sales have held up relatively well in recent months. The U.S. has imposed 25% tariffs on auto imports. Japanese automakers have plants in Mexico, where Trump has announced a separate set of tariffs. The U.S. has also imposed 50% tariffs on steel and aluminum. Japanese officials have been talking frequently with the Trump administration, stressing that Japan is a key U.S. ally. Trump posted on his social media site Monday that Japan wasn't buying enough rice from the U.S. 'They won't take our RICE, and yet they have a massive rice shortage,' the president wrote, adding that a letter to Japan was coming. Also on Monday, National Economic Council director Kevin Hassett told reporters at the White House that Trump 'is going to finalize the frameworks we negotiated with a whole bunch of countries after the weekend.' The Bank of Japan, which has kept interest rates extremely low for years to encourage growth, is expected to continue to raise interest rates, but some analysts expect that to wait until next year. The central bank raised its benchmark rate to 0.5% from 0.1% at the start of this year and has maintained that rate. The next Bank of Japan monetary policy board meeting is at the end of this month. The tankan findings work as important data in weighing a decision. The weak yen has raised the cost of materials for Japan at a time when the U.S. dollar has been trading at around 140 yen, up considerably from about 110 yen five years ago. A weak yen is a boon for Japan's exporters by boosting the value of their earnings when converted into yen. The tankan showed sentiment for large non-manufacturers fell to plus 34 from plus 35. That was better than some forecasts, which projected a deeper decline. The Japanese government reported last week that the nation's unemployment rate in May stood at 2.5%, unchanged from the previous month. ___ Yuri Kageyama is on Threads: Yuri Kageyama, The Associated Press
Associated Press
18 minutes ago
- Associated Press
Japanese manufacturers are slightly more optimistic despite Trump tariff worries
TOKYO (AP) — Business sentiment among large Japanese manufacturers has improved slightly, according to a survey by Japan's central bank released Tuesday, although worries persist over President Donald Trump's tariffs. The Bank of Japan's quarterly tankan survey said an index for large manufacturers rose to plus 13 from plus 12 in March, when it marked the first dip in a year. The survey is an indicator of companies foreseeing good conditions minus those feeling pessimistic. Major manufacturers include auto and electronics sectors, whose exports to the U.S. drive the Japanese economy. U.S. auto tariffs are a worry for major manufacturers like Toyota Motor Corp., but some analysts note global auto sales have held up relatively well in recent months. The U.S. has imposed 25% tariffs on auto imports. Japanese automakers have plants in Mexico, where Trump has announced a separate set of tariffs. The U.S. has also imposed 50% tariffs on steel and aluminum. Japanese officials have been talking frequently with the Trump administration, stressing that Japan is a key U.S. ally. Trump posted on his social media site Monday that Japan wasn't buying enough rice from the U.S. 'They won't take our RICE, and yet they have a massive rice shortage,' the president wrote, adding that a letter to Japan was coming. Also on Monday, National Economic Council director Kevin Hassett told reporters at the White House that Trump 'is going to finalize the frameworks we negotiated with a whole bunch of countries after the weekend.' The Bank of Japan, which has kept interest rates extremely low for years to encourage growth, is expected to continue to raise interest rates, but some analysts expect that to wait until next year. The central bank raised its benchmark rate to 0.5% from 0.1% at the start of this year and has maintained that rate. The next Bank of Japan monetary policy board meeting is at the end of this month. The tankan findings work as important data in weighing a decision. The weak yen has raised the cost of materials for Japan at a time when the U.S. dollar has been trading at around 140 yen, up considerably from about 110 yen five years ago. A weak yen is a boon for Japan's exporters by boosting the value of their earnings when converted into yen. The tankan showed sentiment for large non-manufacturers fell to plus 34 from plus 35. That was better than some forecasts, which projected a deeper decline. The Japanese government reported last week that the nation's unemployment rate in May stood at 2.5%, unchanged from the previous month. ___ Yuri Kageyama is on Threads:
CNBC
22 minutes ago
- CNBC
China's June factory activity unexpectedly expands, private survey shows
China's factory activity unexpectedly returned to growth among export-oriented manufacturers in June, a private survey showed Tuesday, as the country shrugged off headwinds from trade disruptions. The Caixin/S&P Global manufacturing purchasing managers' index (PMI) came in at 50.4, beating Reuters' median estimate of 49.0 and rebounding from 48.3 in May, which had been its worst contraction since September 2022. The private survey appeared to diverge from the country's official PMI report, released on Monday, which showed that manufacturing activity contracted for a third consecutive month in June, despite a modest improvement from the previous two months. The official PMI surveys a larger sample of over 3,000 companies and aligns more closely with industrial output, while the Caixin survey covers a smaller pool of over 500 mostly export-oriented firms, according to Goldman Sachs. The official survey is conducted at month-end, while the Caixin survey is compiled mid-month. Chinese exporters have sought to front-load shipments to avoid U.S. tariffs, which are poised to rise when the 90-day trade truce expires in mid-August. It remains unclear whether both sides will reach an agreement to extend that reprieve further. So far, the country's outbound shipments have held up relatively strong over the past two months, as exporters pivoted to alternative markets, notably Southeast Asian countries and European Union nations. Its exports to the U.S. plunged 34.5% in May from a year ago and by over 21% in April. Morgan Stanley economists, however, pointed to softening export momentum to the U.S. and other destinations in recent weeks as the front-loading activity starts to taper. Beijing and Washington may be moving closer to a resolution of the fentanyl dispute, which will likely see the U.S. drop its 20% fentanyl-related tariff on Chinese goods, according to Neo Wang, lead China economist and strategist at Evercore ISI. "All we've seen so far pointed to further de-escalation," he said in a note.
