U.S.-Japan trade pact; Alphabet, Tesla to report - what’s moving markets
Investing.com -- The S&P 500 closed at a record high on Friday, rising 0.52% to 6,173.07, despite fresh tariff comments from U.S. President Donald Trump. Earlier in the day, it hit an intraday high of 6,187.68, surpassing its previous peak.
The Nasdaq Composite also closed at a record, gaining 0.52% to 20,273.46, while the Dow climbed 432 points, or 1%, to 43,819.27.
Markets initially rallied on optimism after Commerce Secretary Howard Lutnick said a U.S.-China trade framework had been finalized and deals with other major partners were expected soon. Gains later eased after Trump announced the end of U.S.-Canada trade talks.
Since its April 8 low, the S&P 500 has surged over 20%, driven by resilient investor demand, AI-fueled tech gains, and momentum despite geopolitical and fiscal concerns.
After weeks of spotlight on geopolitics, investors will likely turn their attention to upcoming economic data and policy signals this week, to gauge whether the recent stock market rally can continue.
The focus is on Thursday’s U.S. jobs report, which could offer key insight into the health of the labor market. Markets will be closed Friday for the July 4 holiday. Economists expect June payrolls to rise by 110,000, down from May’s 139,000, according to a Reuters poll.
Citigroup’s U.S. economic surprise index has been slipping, reflecting weaker-than-expected data.
“After some softer May data, the June data is really going to be under a microscope,” said Matthew Miskin of Manulife John Hancock Investments. “If the data deteriorates more, it may get the market’s attention.”
Although jobless claims dropped last week, the unemployment rate may edge higher as laid-off workers face challenges finding new positions.
Markets are also watching developments in Washington, where President Donald Trump is pressing Republicans to pass a major tax and spending bill by July 4.
Markets look ahead to Fed cuts as earnings, labor data take center stage
Labor market trends will likely influence rate-cut expectations, especially if inflation continues to ease.
Strategists at Morgan Stanley (NYSE:MS) believe the equity market is likely to move ahead of the Federal Reserve’s official policy pivot, noting that “the equity market isn’t going to wait for the obvious signal in terms of a more dovish shift in monetary policy from the Fed—i.e., stocks will get in front of it.”
“Our economists see the Fed cutting 7 times next year,” added the strategists, who see this dynamic as a likely tailwind for back-and rates and valuations in the second half of 2025.
Historically, equities tend to perform well during cutting cycles, even when markets move early, strategists said.
They also note that recent data points to employment, rather than inflation, as the bigger risk—potentially accelerating expectations for easing, which would be supportive for stocks barring a sharp rise in unemployment.
Another catalyst that Morgan Stanley highlighted is the improving revisions breadth, which has risen to -5%, up from a low of -25% in mid-April, providing fundamental support for the equity market’s gains since the April bottom.
What analysts are saying about U.S. stocks
JPMorgan: "The chances are that the upcoming Fed easing will allow the market to look through any potential activity weakness, in a sense invoking the regime of “bad news is good news”. We think the potential market reaction will depend on the context of cuts. We highlight three potential scenarios: first, the Fed is cutting as activity is clearly weakening; second, it is cutting in 2H as no inflation is coming through from implemented tariffs, and as activity is staying resilient; and third, it is cutting despite some inflation pressure showing up, potentially in the background of the U.S. administration pushing for lower rates."
Morgan Stanley: "Equity markets have been resilient since bottoming in April, and the rally has been more fundamentally-driven than many appreciate. While there could be some consolidation during 3Q, we remain bullish on a 6-12 month horizon as EPS tailwinds expand, and the market has line of sight to Fed cuts."
Evercore ISI: "It’s not yet the time to “pile in” in anticipation of a FOMO- driven meltup. With SPX at a pricey 24.4x trailing P/E and ahead of 7/4’s OBBB and 7/9’s Tariff deadlines, Patience and Prudence [are] advised. Maintain overweight AI stocks and sectors – Comm. Svcs., Cons. Disc., Info. Tech."
Yardeni Research: "Though the stock market is back on record-high ground after a couple of big worries have dissipated, investors remain wary, sentiment readings show. Slowing economic activity has ascended to the top of their worry list. True, some key recent economic indicators have come in weaker than expected. But that suggests a soft patch, nothing worse. The recent outperformance of four cyclical sectors associated with our bullish themes supports our long- term optimism on the economy."