It’s no wonder US stocks last week rocketed to all-time highs. That spectacular rally, which started in mid-April, created more than $10 trillion dollars of market capitalization for the S&P 500. With investors encouraged by recent economic progress, the equity market outlook is looking more and more positive. This surge comes in conjunction with significant legislative progress, international trade negotiations, and upcoming labor market indicators that could shape the economic landscape in the coming weeks.
The US Senate has now extended this hope, voting yesterday to advance President Trump’s ambitious tax and spending mega bill. This decision is set to impact fiscal policy significantly and help jumpstart economic growth. As we mentioned last week, the US and China just reached a historic trade deal. At the same time, the European Union and the US continue to struggle to complete their own trade agreements. These changes are important moves in the right direction of providing a more conducive overall economic environment.
Market Performance and Economic Indicators
In the second quarter of this year, US stock indices outperformed their European peers by a wide margin. As noted above, the S&P 500 was up 10%, but the Nasdaq was up a stunning 17% with tech in particular booming. The gains of 8% and 10%, respectively, for the Russell 2000 and Russell 3000 were no slouches, either. This strong performance has led to a very dynamic market environment, as investors have looked to take advantage of great economic news.
The dollar index has struggled, posting its worst start to a year in 16 years. On Monday, the dollar continued its decline, with the US currency at that time the worst-performing currency of the G10. Market analysts have pointed to many reasons for this decline, including continuing trade negotiations and changing investor sentiment. Core CPI, which strips out volatile food and energy prices, will probably remain unchanged at 2.3%. At the same time, the headline CPI will probably tick up a bit, from 1.9% to 2%.
Looking forward, analysts are expecting around 110,000 new jobs in June, which would be the lowest number since February. This data will come out one day earlier than normal, due to the Independence Day holiday on Friday. We’ll be watching those numbers of jobs created very carefully. They can shine a bright light on what’s happening with the health of the overall labor market, and increasingly, for overall economic trends.
Trade Negotiations and Global Relationships
Trade negotiations are getting underway, or should be soon! The US seems prepared to re-engage with Canada now that Canada has opted to abandon its plan for a digital sales tax. This is a positive development and should be taken as an encouraging sign of both parties’ willingness to seek common ground and improve bilateral trade relations.
Japan’s chief trade negotiator Taro Aso has chosen to prolong his visit to the US. He hopes to get past the negotiating stage and have a formal, legally binding agreement in hand within just days. Everyone is energized by these conversations. Such enthusiasm belies a more general optimism—though unearned—over prospects for rapid US trade agreements with some of its largest trading partners. These types of agreements are seen as strong positive tailwinds for a market, an early indication of new or expanded economic activity and stability.
The US has indeed just concluded a trade deal with the UK. This is a powerful first step on the administration’s part to deepening our international trade partnerships. These exciting developments are a clear testament to the role trade plays in creating the right market conditions and building investor confidence.
Earnings Estimates and Market Outlook
Among them, businesses are preparing for second quarter earnings reports. Projections indicate that the S&P 500 will be reporting a year-over-year growth of 5%. This new projection represents the smallest growth estimate since Q4 2023. Investors should be looking closely at these earnings releases, and they will provide a key litmus test for both corporate health and the overall state of the economy.
A backdrop of strong stock market performance and positive trade developments are fueling optimism in the market. These pleased lawmakers to realize that anticipated economic indicators only reinforce this positive outlook. To be sure, challenges still exist, especially around currency performance and official job creation figures, but the mood is one of cautious optimism.