Wall Street Slips as Trade Tensions Rise and Dollar, Oil Shift: Wall Street indices
pulled back from record highs
As U.S. President Donald Trump escalated trade threats,
boosting the dollar.
Concerns about the inflationary effects of increased tariffs also weighed
on the performance of the U.S. Treasury bond market,
while oil prices surged in anticipation of possible U.S. actions to curb Russian energy exports.

Contents
Temporary Pause

Trade Outlook and Forecasts

Earnings Season

Major Banks Outlook

Sustainability of the Rally

Excessive Optimism

Anticipation of Rate Cuts

Market Focus

Temporary Pause in Market Momentum

After a strong rally that drove the S&P 500 to its fifth peak in nine trading sessions,
The momentum paused.
Around 400 stocks in the index declined,
but gains in major technology firms helped markets avoid deeper losses.
Kraft Heinz shares rose following reports of a possible business spinoff.
The six largest U.S. banks are expected to announce earnings next week,
with forecasts indicating an increase in trading revenues.

Trump’s Threats Push the Market Down

Trump stated he plans to impose a 35% tariff on certain Canadian goods
and hinted at raising tariffs on most other countries,
suggesting a general tariff rate between 15% and 20% on the majority of trade partners.
The current average tariff for U.S. partners is about 10%.

Matt Maley from Miller Tabak noted,
“The president’s tougher stance on tariffs is pushing the market downward,
especially given the current overbought condition that makes it vulnerable to a correction.”

Market Performance: Dollar, Bonds, and Bitcoin

Long-term debt led the bond market downturn,
with the market registering losses for the second week in a row.
The dollar had its strongest weekly performance since February,
while Bitcoin surged past $118,000 for the first time.

Trade Outlook and Forecasts

According to Ulrike Hoffmann-Burchardi of UBS Global Wealth Management,
U.S. trade policy is expected to stabilise in the second half of the year.
She projected that tariffs would settle near 15%,
and that economic growth would slow without triggering a recession.

She also emphasised that most S&P 500 stocks are relatively immune
to tariffs and expects the index to reach 6,500 points by June 2026,
despite seasonal volatility.
The index closed Friday at around 6,260 points.

Earnings Season Boosts Sentiment

Investors are betting on a strong earnings season,
According to Bank of America strategists.
Michael Hartnett noted that clients are not concerned about the economy or valuations.

Conversely, Citigroup strategists predicted a slowdown
in global stock growth over the next 12 months
and called earnings expectations “optimistic” despite ongoing economic uncertainty.

Major Banks Perspective

Analysts expect S&P 500 companies’ earnings
to grow by 2.8% year-over-year—the slowest pace since 2023,
According to Bloomberg Intelligence.

Michael Landsberg from Landsberg Bennett Private
Wealth Management said Q2 earnings would be good but below Q1 levels,
citing the impact of trade and tariff issues on some industries.
Despite the unclear picture,
He believes earnings might exceed the currently low expectations,
which would be positive for the market.

Debate on the Sustainability of the Rally

Mark Hackett from Nationwide explained that stable earnings
Estimates are key to sustaining the market rally.
He added that pessimists were caught off guard by the recent strength.

He noted that historically,
When the S&P 500 rises more than 20% within two months or less
As seen in Q2, it goes on to gain another 15%+
over the following year in all ten previous instances.

At the same time, the VIX (fear index) dropped below 16,
and analysts have begun raising year-end targets,
With sentiment no longer bearish despite signs of overbought conditions.

Signs of Excessive Optimism

The number of sellers in the market has declined,
With declining stocks making up only 42% of total U.S. trading
volume last month—the lowest since 2020, per Thrasher Analytics.

Andrew Thrasher suggested that this reflects overconfidence among investors,
a pattern previously seen before corrections in 2020, 2019,
and 2016, when the S&P 500 dropped at least 5%.

The ICE BofA MOVE Index, which measures bond yield volatility,
hit its lowest level since early 2022.
Meanwhile, 10-year and 30-year U.S. government bond auctions saw strong demand.

Anticipation of Interest Rate Cuts

RBC Capital Markets analysts postponed their forecast
for the start of the rate cuts from September to December,
citing the need for more time to assess inflation and the labour market.

Blake Gwinn and Isaac Brock wrote that the situation
will likely remain unchanged unless there’s clear evidence
that tariff-related inflation has peaked, and labour market
weakness deepens—neither of which is likely to happen on its own.

Market Focus on Inflation Data

The market is now focused on the upcoming release of the Consumer Price Index (CPI) for June,
scheduled for Tuesday.

Morgan Stanley analysts expect the data to show greater impact from tariffs,
though pressures remain relatively light as prices of some high-tariff goods are still low.
Inflation related to tariffs is expected to accelerate in July and August.

Ian Lyngen from BMO Capital Markets stated that data from August onward,
when full tariff schedules come into effect, will be the real test for inflation trends.

Wall Street Slips as Trade Tensions Rise and Dollar, Oil Shift

Wall Street Slips as Trade Tensions Rise and Dollar, Oil Shift:

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