S&P 500 Climbs at End of Best Quarter Since 2023

“Markets proved remarkably adaptable and resilient in the face of geopolitical shocks and trade uncertainty in the first half, largely because economic and profit conditions stood on firm footing,” said Anthony Saglimbene at Ameriprise.

Just days ahead of the U.S. jobs report, bonds rose. Treasury Secretary Scott Bessent indicated it wouldn’t make sense to ramp up sales of longer-term debt given where yields are, though he held out hope that rates across maturities will be falling as inflation slows.

Goldman Sachs Group Inc. is now projecting a Fed cut in September as the inflationary effects of tariffs “look a bit smaller” than expected.

A relative sense of calm prevailed at the end of a first half that saw wild swings lashing markets across the board amid President Donald Trump’s fast-evolving trade war, world conflicts, recession jitters as well as concerns about a ballooning deficit that could threaten America’s status as a safe haven.

“No one could fault an investor if at one point during the first half of 2025 they shouted, ‘Stop the world, I want to get off’,” said Sam Stovall at CFRA.

With Trump’s July 9 trade deadline fast approaching, the European Union is willing to accept a deal with the U.S. that includes a 10% universal tariff on many of the bloc’s exports, but seeks key exemptions. Trump threatened to impose a fresh tariff level on Japan, citing what he said was the country’s unwillingness to accept rice exports from the U.S.

“The biggest catalyst for financial markets as a whole could be progress in trade talks — of a lack thereof,” said Fawad Razaqzada at City Index and Forex.com. “As long as there are no major escalations again in the Middle East or in the trade war, you’d think stock markets may not suffer much on any macro data. Still, there is always room for surprises.”

“While tariff headlines could periodically unsettle markets, we do not currently see them as a catalyst for a sustained market selloff,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “For investors under-allocated to broad equity markets, we recommend gradually increasing exposure to diversified global stocks or balanced portfolios to position for stronger potential returns in 2026 and beyond.”

After the S&P 500 came back to all-time highs it may be up to the labor market to keep the momentum going, according to Chris Larkin at E-Trade from Morgan Stanley.

“So far, the market has shrugged off signs of a slowing economy, but with the tariff picture still up in the air, a negative surprise on the jobs front could have more of an impact, especially during what will likely be a light-volume holiday week,” he said.

U.S. stocks could come under pressure if Fed rate cuts are accompanied by weaker economic growth, according to JPMorgan Chase & Co. strategists led by Mislav Matejka.

As long as there isn’t a meaningful rise in the unemployment rate, American equities are likely to get a boost from Fed policy easing, said Morgan Stanley strategists led by Michael Wilson.

Economists forecast employers added 113,000 jobs in June, the fewest in four months yet still consistent with healthy labor demand. The Bureau of Labor Statistics report is due Thursday, a day earlier than usual because of the Independence Day holiday. It’s also forecast to show the unemployment rate crept up to 4.3%.

For a Fed awaiting more clarity on the potential inflationary impact from tariffs, any pronounced deterioration in the labor market would likely lead to more pressure on officials to lower interest rates.

But the higher the S&P 500 goes, the louder the concern that its multiples are starting to look frothy. The index is trading at 22 times expected profits in the next 12 months, 35% above its long-term average, data compiled by Bloomberg show.

Earlier on Friday, Bank of America Corp. strategists warned of the increasing risk of a speculative stock-market bubble as traders drive massive flows into equities on expectations of U.S. interest-rate cuts. The upcoming earnings season could also test the foundation of the recent rally, especially with lackluster forecasts piling in.

U.S. profit margins will face a big test in the upcoming reporting season as investors assess the damage from Trump’s trade war, according to Goldman Sachs Group Inc. strategists led by David Kostin. They say earnings will “capture the immediate effects” of tariffs that have already increased by about 10 percentage points since the start of the year.

“Healthy economic fundamentals are an ultimate buffer for negative headlines, after all,” said Seema Shah at Principal Asset Management. “As such, equities should remain resilient unless an adverse event materializes into something larger that curtails household spending and company earnings.”

That said, Shah also notes that given the uncertain policy backdrop, a broader hit to market sentiment cannot be ruled out.

“In this environment, it’s essential for investors to maintain well-diversified portfolios designed to navigate periods of heightened uncertainty,” she said.

“Healthy economic fundamentals are an ultimate buffer for negative headlines, after all,” said Seema Shah at Principal Asset Management. “As such, equities should remain resilient unless an adverse event materializes into something larger that curtails household spending and company earnings.”

That said, Shah also notes that given the uncertain policy backdrop, a broader hit to market sentiment cannot be ruled out.

“In this environment, it’s essential for investors to maintain well-diversified portfolios designed to navigate periods of heightened uncertainty,” she said.

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