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How the stock market made it back to a new record — even with so much still to worry about
How the stock market made it back to a new record — even with so much still to worry about

CNBC

time7 days ago

  • Business
  • CNBC

How the stock market made it back to a new record — even with so much still to worry about

An aggressive trade war, Middle East escalation and AI competitions overseas — None of 2025's big curveballs managed to spoil the market's epic comeback from the year's lows as stocks stand within reach of a new record. Here's why. The S&P 500 is just 0.85% away from closing at a new record, rebounding from a near 20% sell-off in April. The tech-focused Nasdaq 100 is already one step ahead, hitting an all-time high on Tuesday. The latest leg higher came as investors bet a ceasefire in the Middle East could prevent a major disruption to global oil supply. "I'm surprised by the magnitude of the rebound," said Kevin Simpson, portfolio manager at Capital Wealth Planning. "When you factor in the geopolitical backdrop — the ongoing conflict, volatility and uncertainty — I wouldn't have expected the S&P 500 to snap back to new highs this quickly. This kind of strength speaks to just how much liquidity is still in the system and how eager investors are to buy dips in a market dominated by megacap tech and AI enthusiasm." Overall, the wall of worry has been crumbling little by little over the past four months. Perhaps most importantly, President Donald Trump backed off from the stiffest tariffs on key U.S. partners as countries continue to negotiate trade deals in the summer. Earlier this month, the U.S. reached a trade truce with China with Beijing agreeing to supply rare earths. "We expect more trade deals to provide some additional clarity and eventually reduce corporate, consumer and investor anxiety," Chris Haverland, global equity strategist at Wells Fargo Investment Institute., said in a note. "Deregulation, tax cuts and lower short-term borrowing rates should further bolster earnings." Also, corporate earnings have held up well despite policy uncertainty. For the second quarter, the S&P 500 earnings grew by 4.9%, marking the eighth consecutive quarter of year-over-year earnings growth for the index, according to FactSet. Another reason for market resilience is the U.S. economy, which remains on solid footing. The unemployment rate remains low at 4.2% also the May nonfarm payrolls report showed only a slight softening in the labor market. The most recent inflation data also indicated that tariffs have done little to affect prices. The Federal Reserve expects to make two rate reductions later this year, according to the closely watched "dot plot." Fed Chair Jerome Powell reiterated that he expects policymakers to stay on hold until they have a better handle on the impact tariffs will have on prices. "In our baseline scenario we believe a US recession will be avoided," Dubravko Lakos-Bujas, chief global equity strategist at JPMorgan, said in a note to clients. "Recent weakness in some of the labour market indicators and limited pass-through from tariffs to inflation so far could prompt a Fed easing earlier than our December forecast." Meanwhile, the artificial intelligence story that has supported the market well over two years continues to be unfazed. The latest earnings season has restored investor confidence — Nvidia continued to grow at a rapid clip, while Big Tech's spending on AI hasn't slowed down. Investors were rattled at the beginning of the year as China's DeepSeek startup raised the question whether the billions of dollars of investment was justified. "The secular trend of AI remains robust, and recent adoption and monetization trends should underpin the next leg of the AI rally amid a supportive backdrop," Ulrike Hoffmann-Burchardi, head CIO global equities at UBS, said in a note to clients. JPMorgan estimated that AI could drive $1 trillion of spending by 2030, including investments in generative AI computing, networking and storage infrastructure. Still, the next few weeks could bring more volatility to the market. Investors are bracing for a July 8 deadline for reciprocal tariff suspension, while more jobs data are on deck next week to gauge the health of the labor market. "Markets often tend to see more volatility in the build up to conflicts and then rally or turn to other factors once it's started," said Carol Schleif, chief market strategist at BMO Private Wealth.

Investors are buying defense stocks as Middle East conflict worsens
Investors are buying defense stocks as Middle East conflict worsens

CNBC

time17-06-2025

  • Business
  • CNBC

Investors are buying defense stocks as Middle East conflict worsens

(This is a wrap-up of the key money moving discussions on CNBC's "Worldwide Exchange" exclusive for PRO subscribers. Worldwide Exchange airs at 5 a.m. ET each day.) Investors are looking for opportunities in defense. They are also exploring the value trade while navigating geopolitical uncertainty from Middle East tensions. Worldwide Exchange pick: RTX Kevin Simpson of Capital Wealth Planning said defense stock RTX is a solid buy because of the conflict between Israel and Iran as well as its current valuation. "This is a 17 [price-to-earnings] multiple, so good value with a growth component. [It] pays a 2% dividend so you are getting paid while you wait," Simpson said. Other names tied to defense and oil, such as Northrup Grumman and Halliburton, also moved higher in the premarket. Simpson said there could be risk in trading on headlines, adding: "This whole space is butting up against all time highs … so you want to look at multiples make sure you aren't chasing something." "But you need to have at least one or two names for a diversified portfolio." Geopolitical uncertainty and the value trade Callie Cox of Ritholtz Wealth Management believes there are opportunities in value stocks, specifically those that offer dividends and are tied to the recent rise in oil. "We're always looking at value stocks because we want to maintain stability and consistency in our client portfolios," Cox said. "Energy stocks are a big component of the value trade. If you think this Iran conflict will end up raising oil prices then you want to be in value stocks." "Dividends are another interesting strategy to think about when growth is slowing and definitely when inflation is moving higher," Cox said. Tech ETF hits all-time highs Mark Hackett of Nationwide sees the Technology Select Sector ETF (XLK) hitting all time highs as a sign of increasing defensive positioning. "When the technical rallies happen investors tend to gravitate towards tech, in general tech has been defensive as well," said Hackett. "But generally when you get through the technical rally we have seen over the last few months, you are going to have to look at fundamentals and frankly the valuations there are very extended." The fund reached record levels on Monday. Several XLK members also hit record highs on Monday, including Palantir and Jabil. The former trades at 229 times forward earnings and is up 87% this year. The latter has rallied 35% in 2025 and trades at a forward multiple of 18.

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