US President Donald Trump’s tariff pause is set to end on July 9, with few deals locked in and scant progress in negotiations. Yet the stock market that once swung wildly on trade headlines appears to see little risk, as equity indexes sit near all-time highs and volatility evaporates.
What gives?
In part, the calm is being fuelled by expectations that Trump will extend his tariff deadline based on his pattern of threatening harsh measures and subsequently backing down, a strategy analysts and strategists call “TACO” for “Trump Always Chickens Out”.
But more importantly, Wall Street pros see no sense in fighting the market’s momentum as the economy remains healthy and Corporate America appears to be taking trade policies in stride — at least for now.
“There’s still some focus on July 9, but so many other factors are being watched these days, too,” said Michael Kantrowitz, chief investment strategist at Piper Sandler & Co. “Once again, investors are less worried. In the absence of a spike in rates, inflation or the unemployment rate, stocks will continue to grind higher.”
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The S&P 500 Index just closed out its best quarter since December 2023 and cleared the 6,200 level before dipping back below on Tuesday and ending the session down 0.1%.
The technology-heavy Nasdaq 100 Index had its best quarter since March 2023 as the stock market’s usual leaders are taking their place at the front of the line again. Both posted losses in the first quarter.
Meanwhile, traders have amped up their allocations to the market’s riskiest corners. Even institutional investors, who mostly stayed put for much of the 25% upswing since April, are gradually moving off the sidelines. And options data shows that Wall Street isn’t concerned about substantial volatility anytime soon.
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Smart money in
“Trade deals of some kind are likely to come, and underneath, earnings estimates have stabilised after falling in the immediate aftermath of April,” Steven Chiavarone, senior portfolio manager and equity strategist at Federated Hermes, said in a Bloomberg Television interview on Monday. “What started out as just a relief rally is starting to become something real, and that’s what sucks those investors in — slowly and reluctantly.”
The S&P 500’s double-digit surge from its April 8 trough just before Trump paused his tariffs has largely been driven by retail investors. Now, the so-called smart money is starting to buy in as the rally shows few signs of stopping. Systematic strategies last week ratcheted up their exposure to equities, though they still remain underweight, with positioning in most sectors below the historical average, according to data compiled by Deutsche Bank’s Parag Thatte.
Markets have priced out 84% of macroeconomic risk, based on an assessment by Piper Sandler’s Kantrowitz of high-yield credit spreads, leaving room for stocks to move even higher despite the S&P 500 adding more than US$10 trillion in value since early April. The optimism has defied war in the Middle East, uncertainty around the macroeconomic outlook, and a lack of clarity on trade.
“We were pretty bullish for June on things that have nothing to do with Trump — this just has to do with the fact there’s other stuff going on that’s quite positive,” said Alexander Altmann, global head of equities tactical strategies at Barclays. The strategist cited bank deregulation, big tech firms’ continued spending on artificial intelligence, and Trump’s US$3.3 trillion tax and spending bill as factors bolstering the economy.
The Senate passed the bill on Tuesday in a 51-50 vote with Vice President J.D. Vance casting the deciding ballot. But it could still face resistance in the House of Representatives.
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Of course, none of this is to say that the risks facing the market have gone away. Even if Trump extends his tariff pause, there are other levies that are likely to raise expenses for companies or consumers — or both.
Tempered enthusiasm
“We’re still going to end up with high tariff rates and absorb that cost at some point in the future,” Altmann said. “This is a market where it’s very hard to look and trade more than four weeks ahead right now. And it’s very hard to have a strong opinion on events that could or could not happen six months from now.”
The way things stand, exporting nations without a bilateral accord in place by July 9 will face tariffs Trump presented on April 2, ones that are much higher than the current baseline 10% so-called reciprocal rate applied to most countries.
The UK has locked in a deal that reduced some proposed levies but kept the reciprocal rate in place and left unresolved one of Britain’s pain points — 25% duties on steel. The US and China finalised a trade understanding reached in Geneva, US Commerce Secretary Howard Lutnick said last week, but described it as far from comprehensive and with key questions remaining. And Trump has threatened to ramp up tariffs on Japan.
“We don’t have any significant trade deals — we have some memorandums of understanding, we have some agreement to move forward, but we don’t have anything concrete,” said Kate Moore, chief investment officer of Citigroup’s wealth unit. “I’ve been surprised, to be very honest with you, that the market seems to not care about it. It’s one of the reasons why this doesn’t feel like a fundamentally-driven market, despite the fact that we see a lot of strength in technology and artificial intelligence.”
At the same time, JPMorgan Chase & Co.’s trading desk says the setup is bullish, projecting a streak of all-time highs as earnings carry positive momentum with trade deals expected to be announced. Andrew Tyler, the bank’s head of global market intelligence, is looking out for the June nonfarm payrolls report due Thursday. As long as it remains above 100,000, he expects stocks to keep logging fresh records. A survey by Bloomberg of economist estimates sees it coming in at 110,000.
“For now, the market will look through those potential events,” Tyler wrote in a note to clients on Monday, referring to trade turbulence. “Further, we think the July 9 date gets rolled to avoid any market volatility.”
