By Jack Kraft, CFA, Vice President, Investment Strategist
U.S. equities rose to all-time highs last week as investors shifted focus from tensions in the Middle East to artificial intelligence optimism and possible interest-rate cuts in the back half of the year. Trade tensions continued to be a sticking point as news of a confirmed Chinese trade deal broke Friday, while the hopes of a U.S.-Canada deal seem to have stalled out. Meanwhile, in Washington, President Trump’s “Big Beautiful Bill” moved one step closer to being signed into action after the Senate advanced the bill to a final debate over the weekend. The S&P 500 finished the week up 3.4%, completing a V-shape recovery from April 8 lows. Meanwhile, the Dow rose 3.8%, and the Nasdaq jumped 4.2%.
After an eventful first half of the year, stocks are at all-time highs, leaving investors questioning what’s in store for the next six months. This is a timely reminder that record highs for the S&P 500 are historically a very bullish indicator and typically followed by additional record highs. Although there are a litany of reasons to be skeptical in the short-term—such as geopolitical tensions, high valuations, trade policy uncertainty or market concentration—trying to time the market proves to be a fool’s errand. The opportunity cost of waiting to put cash to work can be impactful with 3% and 5% pullbacks happening on average every 69 and 291 days, respectively, since 1927. In fact, JPMorgan did a study that showed since 1988, if you had invested in the S&P 500 on any random day, your average total return one year later would have been just under 12%. However, if you had only invested on days when the S&P 500 closed at an all-time high, your average return after one year would have been closer to 15%. Part of this can be attributed to all-time highs clustering by each other in bull markets.
As we enter the back half of the year, investors will start to look forward to 2026 earnings with consensus estimates showing double-digit profit growth. As long as these estimates are not impacted by a slowdown in U.S. gross domestic product growth or tariffs eroding profit margins, investors will have reason to justify higher valuations on U.S. stocks. This and other tailwinds—such as fiscal stimulus via deregulation and corporate tax cuts, a dovish U.S. Federal Reserve (Fed), and the artificial intelligence revolution—are all valid reasons the S&P 500 could continue to melt up with a cluster of all-time highs in the second half of 2025.
Economic data and second-quarter earnings season will be important catalysts to sustain a move higher. First, the Fed is closely monitoring the labor market as it begins to show cracks with elevated continuing claims and lower monthly job gains. On the economic front, disappointing data could be perceived as positive in the short-term as the market tries to price in when the Fed will resume lowering its benchmark interest . Currently, CME Group’s FedWatch tool is forecasting cuts starting in September. Weakness in labor market data could move up the timeline to the July meeting, while sticky inflation data could push it out further.
Meanwhile, second-quarter earnings season will kick off in mid-July when investors will be looking for key insights on how tariff policy is influencing corporate margins, revenue performance and capital investment decisions. Analysts are estimating that earnings growth will decelerate from 12% in the first quarter to 4% amid lower margins from an increase in the effective tariff rate to roughly 13% from 3% at the start of the year.
Investor sentiment was strongly optimistic last week with eight of the 11 S&P 500 sectors finishing in positive territory. Pacing gains were the technology and communication services sectors as the artificial intelligence trade continues to catch a bid since the April S&P 500 lows. During a Bloomberg interview last week, Mark Benioff, CEO of Salesforce, said the rise of AI in the workforce is a “digital labor revolution” and is completing 30% to 50% of the company’s work. The three sectors in negative territory were consumer staples, real estate and energy. Energy was impacted by de-escalating tensions between Iran and Isreal as oil prices plunged more than 10% for its steepest weekly decline in three years.
Two months ago, trade was all the talk, and now the market seems to ignore headlines attached to the issue. July 8 is a key date and marks the end of the three-month pause that President Trump put on reciprocal tariffs, with trade deals being one-off as of now. Investors have gained a lot of clarity during this pause with some important deals being struck. China confirmed details of a trade framework that allows rare earth exports and eases technology restrictions, according to China’s Ministry of Commerce. Outside of China, tariff rates are likely to move higher post the July 8 deadline after the United States terminated talks with Canda amid a digital services tax on American technology firms. Elsewhere, a deal between the European Union and United States will need to happen quickly as the two trading partners are having trouble finding middle ground.
Looking ahead, news flow should be relatively light during the holiday-shortened week with some key economic reports and minimal earnings releases. Highlighting the economic calendar will be the nonfarm payrolls report on Thursday, which is expected to show that 115,000 jobs were added during the month of June. Additionally, economists are forecasting for the unemployment rate to tick up to 4.3% from 4.2%. Other key releases will be updates from the Institute for Supply Management (ISM) on the services and manufacturing sectors, which are expected to remain in expansionary territory (above 50.0). On the earnings front, the only key report will be from Constellation Brands after the close on Tuesday.
Economic Calendar June 30 – July 4
|
Time (ET) |
Report |
Period |
Median Forecast |
Previous |
|
MONDAY, JUNE 30 |
||||
|
9:45 AM |
Chicago Business Barometer (PMI) |
June |
43 |
40.5 |
|
TUESDAY, JULY 1 |
||||
|
9:45 AM |
S&P final U.S. manufacturing PMI |
June |
— |
52 |
|
10:00 AM |
Construction spending |
May |
-0.10% |
-0.40% |
|
10:00 AM |
Job openings |
May |
7.3 million |
7.4 million |
|
10:00 AM |
ISM manufacturing |
June |
48.6 |
48.50% |
|
TBA |
Auto sales |
June |
— |
15.6 million |
|
WEDNESDAY, JULY 2 |
||||
|
8:15 AM |
ADP employment |
June |
120,000 |
37,000 |
|
THURSDAY, JULY 3 |
||||
|
8:30 AM |
Initial jobless claims |
28-Jun |
240,000 |
236,000 |
|
8:30 AM |
U.S. employment report |
June |
115,000 |
139,000 |
|
8:30 AM |
U.S. unemployment rate |
June |
4.30% |
4.20% |
|
8:30 AM |
U.S. hourly wages |
June |
0.30% |
0.40% |
|
8:30 AM |
Hourly wages year over year |
3.90% |
3.90% |
|
|
8:30 AM |
U.S. trade deficit |
May |
-$61.6B |
|
|
9:45 AM |
S&P final U.S. services PMI |
June |
— |
53.7 |
|
10:00 AM |
Factory orders |
May |
8.20% |
-3.70% |
|
10:00 AM |
ISM services |
June |
50.50% |
49.90% |
|
FRIDAY, JULY 4 |
||||
|
None scheduled, July 4 holiday |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market