Markets Hit Record Highs Ahead of Critical US Jobs Data and Tariff Deadline

Gerik

Summary:

Investor optimism surrounding potential Fed rate cuts and easing tariff tensions has propelled US stock markets to new highs. However, attention now shifts to June's jobs report and the looming July 9 tariff deadline...

Stock Market Reaches New Peaks Amid Softening Rate Outlook

The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all closed last week at all-time highs, buoyed by increasing market confidence that the Federal Reserve will soon initiate interest rate cuts. The S&P 500 climbed 3.5% for the week, while the Nasdaq added over 4.1%, driven largely by waning inflation fears and a retreat in global tariff threats. This rally marks a 23% rebound from the market’s low on April 8, highlighting bullish investor sentiment even as economic indicators show signs of cooling.

Investor positioning suggests a growing belief that a rate cut could come as early as September. The CME FedWatch Tool shows a 93% chance of a rate cut by then, sharply up from 70% last week, reflecting a fast-changing policy outlook.

Fed’s Mixed Messaging Spurs Debate

Federal Reserve officials have recently offered a mixed view of upcoming policy action. Fed Governor Michelle Bowman noted that the labor market "appears less dynamic" and emphasized rising downside risks to employment. In contrast, Fed Chair Jerome Powell maintained a cautious stance, stressing the Fed is "well-positioned to wait." This divergence has left markets speculative but hopeful that softness in consumer demand and labor could prompt more dovish action by late summer.

EY’s Chief Economist Greg Daco expects a September rate cut, predicting further economic deceleration and weaker consumer spending as the quarter unfolds.

June Jobs Report in the Spotlight

This week’s economic focal point will be Thursday’s June nonfarm payrolls report, which analysts expect to show 116,000 new jobs added — a deceleration from May's 139,000. The unemployment rate is forecast to tick up to 4.3%, from 4.2% previously, suggesting further signs of slack in the labor market. Wage growth is expected to cool modestly to 3.8% year-over-year.

This jobs data will be critical for both the Federal Reserve’s interest rate path and investor confidence, especially as markets are closed Friday for Independence Day.

Tariff Pause Deadline Adds Geopolitical Risk

Investors are also closely monitoring President Trump’s July 9 deadline for resolving various global trade negotiations. The current 90-day pause on new tariffs is set to expire, and although deals with the UK, Canada, and potentially others are progressing, uncertainty remains—particularly concerning Europe and China.

The administration’s trade strategy has created planning instability, but for now, markets are betting on extensions or modest agreements to prevent major disruption.

Capital Flows Reflect Strategic Shifts

Despite US equity highs, global capital flows suggest cautious repositioning. As of late June, more than $100 billion has flowed into European equity funds—triple the amount from the same period last year—while US funds saw net outflows of nearly $87 billion. This underscores growing investor concern over US political volatility and a pivot toward perceived European stability.

The stock market’s momentum reflects optimism over easing monetary policy and calming trade tensions, but the foundation remains fragile. The June jobs report, upcoming service and manufacturing indices, and tariff decisions will all test the durability of current investor confidence. Markets may continue to climb in the short term, but unexpected softness in labor data or tariff escalations could prompt swift corrections. Investors are advised to stay cautious and closely monitor economic and political signals over the coming two weeks.

Source: Yahoo Finance

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