Markets Overview
- ASX SPI 200 futures little changed at 8,535.00
- Dow Average up 0.6% to 44,094.77
- Aussie up 0.8% to 0.6581 per US$
- US 10-year yield fell 4.9bps to 4.2280%
- Australia 3-year bond yield rose 1.6 bps to 3.26%
- Australia 10-year bond yield rose 3.3 bps to 4.16%
- Gold spot up 0.9% to $3,303.25
- Brent futures down 0.2% to $67.61/bbl
Economic Events
- 09:00: (AU) June S&P Global Australia PMI Mfg, prior 51.0
Wall Street’s bulls drove stocks to all-time highs at the end of a solid quarter amid hopes the US is moving closer to reaching concrete deals with its top trading partners. Bets the Federal Reserve will resume rate cuts powered the best first-half stretch for Treasuries in five years. The dollar saw its longest monthly slide since 2017.
Following a roughly 25% surge from its April lows, the S&P 500 notched its best quarter since December 2023. The US equity benchmark topped the 6,200 milestone on Monday, with technology shares leading the charge. Apple Inc. climbed the most among megacaps. Oracle Corp. jumped on a cloud-services deal worth $30 billion a year. Big banks gained after passing the Fed’s annual stress test, setting the stage for payouts.
“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 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 drop as inflation slows. Goldman Sachs Group Inc. projects 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 an acoord 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, while his top economic adviser said the White House aims to finalize deals with partners after the July 4 holiday.
“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.”
To Ulrike Hoffmann-Burchardi at UBS Global Wealth Management, while tariff headlines could periodically unsettle markets, they shouldn’t be a catalyst for a sustained market selloff.
“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,” she said.
At JPMorgan Chase & Co., strategists led by Mislav Matejka said US stocks could come under pressure if Fed rate cuts are accompanied by weaker economic growth. 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.
“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,” said Chris Larkin at E*Trade from Morgan Stanley.
The June employment report, due on Thursday given the July 4 holiday on Friday, is forecast to show growth in the workforce easing to about 110,000 new jobs from 139,000 the prior month, according to economists surveyed by Bloomberg. The unemployment rate is seen nudging 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 rates.
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 rate cuts. The upcoming earnings season could also test the foundation of the recent rally, especially with lackluster forecasts piling in.
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.
“Those looking for an accommodative Fed to keep the market rising in the second half of the year will be quite disappointed,” said Matt Maley at Miller Tabak. “The market could indeed push higher as we move through July/August and beyond. Momentum can be a powerful force in the markets, so if the stock market rallies further as we move through earnings season, the whole thing could feed on itself.”
But the higher the S&P 500 goes, the louder the concern that its multiples are starting to look frothy. The index is trading around 22 times expected profits in the next 12 months, roughly 35% above its long-term average, data compiled by Bloomberg show.
Since World War II, there have only been three times where the market was down more than 10% and still finished positive – and we’re shaping up to do it again, noted Mark Hackett at Nationwide.
“As we look ahead, the labor market data will be critical, but it will be how the market reacts that is most important, not the numbers themselves,” he said. “If equities rally on weak jobs figures, we’re clearly in ‘bad news is good news’ mode, with investors betting on Fed support.”
While momentum is working in the market’s favor, with valuations at such levels and earnings estimates holding, “we are likely stealing returns from the back half of the year,” Hackett said.
