A Strong Short Week for Stocks
Stocks closed higher last week, making it two weeks in a row of gains for the S&P 500 and three in a row for most other major indexes. Both the S&P 500 and Nasdaq hit new all-time highs, showing continued strength in the markets.
A key driver of last week’s returns was seemingly the optimism surrounding the passage of Trump’s “Big, Beautiful Bill”( which is viewed by many investors as business- friendly) and the relatively solid jobs report. The U.S. economy added 147,000 jobs in June, beating expectations, while the unemployment rate also ticked down to 4.1%. This report came in contrast to Wednesday’s ADP report which showed a loss of 33K private payrolls which seemed to have made investors a little uneasy.
In global news, the U.S. finalized a new trade deal with Vietnam, adding to recent deals with the U.K. and China and it’s been telegraphed that more trade agreements may be on the way with India, Japan, and South Korea.
Other markets reacted to a mix of inflation signals, geopolitical risk, and shifting expectations around Fed policy. These drivers lifted both oil and gold, moved bond yields higher, and pushed the dollar to multi-year lows before a late week rebound
Source: stockcharts.com
Quiet Week Ahead, But All Eyes on the Fed
This week is relatively light on economic data, but one key release could still move the markets: the Federal Reserve’s Meeting Minutes, due out Wednesday. These minutes provide a detailed look at what Fed officials discussed at their last meeting, and investors will be combing through them for clues about the Fed’s next steps.
The big question on everyone’s mind is: How open is the Fed to cutting interest rates? With inflation cooling and the labor market remaining mostly stable, many are hoping the Fed will signal it’s getting closer to lowering rates.
If the minutes suggest that Fed members are more willing to ease policy, it could boost market sentiment and support further gains in stocks. On the other hand, if the Fed still sounds cautious, markets might pull back a bit as expectations for rate cuts get pushed further out.
Bottom line: It’s a quiet week for headlines, but the Fed minutes could offer important insight into the future path of interest rates and that’s something both Wall Street and Main Street are watching closely.
Tying it all together:
Markets are currently walking a fine line. The economic data we’ve seen lately paints a picture of a soft but steady environment as growth is slowing, but potentially not enough to spark recession fears. At the same time, it may not strong enough to take rate cuts off the table. The Federal Reserve has left interest rates unchanged, but recent comments from officials suggest they remain open to easing policy later this year, especially if inflation continues to trend lower. That outlook has seemingly helped support equity markets, which currently remain near multi-month highs.
The labor market continues to be a relatively bright spot. While job growth has cooled somewhat from last year’s pace, unemployment remains low, and wage pressures have moderated without falling off a cliff. This “not too hot, not too cold” dynamic has givem the Fed more flexibility with enough economic strength to avoid a downturn, but not so much that it risks reigniting inflation. Still, the Fed is walking a narrow path, and any surprises in inflation or employment data could shift the outlook quickly.
At the same time, stock market valuations remain elevated, reflecting a high level of investor confidence, or perhaps complacency. Despite ongoing geopolitical risks, tariff and trade war concerns, and an uncertain Fed timeline, sentiment remains relatively optimistic. The market seems to currently be pricing in a near-perfect scenario where inflation continues to fall, the labor market remains strong, the Fed starts cutting rates, and the economy avoids a recession. While that outcome is possible, it leaves little room for error.
Looking ahead, we see both risks and opportunities. On the one hand, volatility could pick up if the current narrative begins to change. On the other hand, a stable labor market and easing inflation pressures could create a supportive environment for well-positioned portfolios. In this kind of landscape, staying diversified, focusing on quality, and remaining flexible and adaptive as the backdrop emerges has consistently served investors well.
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