The countdown to significant trade deadlines is intensifying, and investors are finding themselves in prolonged negotiations as stocks linger around their previous highs. The 90-day postponement on “mutual” tariffs that President Trump implemented is set to conclude on Tuesday. Additionally, the deadline for the U.S. and the European Union to finalize a contract—aimed at avoiding a 50% tariff on EU imports—is expected to close on Wednesday. However, most market players anticipate that the Trump administration will likely push forward anyway. The White House has recently dubbed the July trade deadline as “non-critical,” which instilled some confidence that the administration might not impose the stringent tariffs mentioned earlier this year. Investors are keenly awaiting developments from ongoing discussions with the EU, Japan, India, and others. Meanwhile, an important detail for many—China’s 90-day grace period—won’t wrap up until August.
“I think that’s probably what we can expect,” remarked Thomas Brown, a portfolio manager at Keely Teton Advisor. He mentioned that while announcements might follow, he doesn’t anticipate a complete resolution to the situation. The S&P 500 and NASDAQ composite both reached new record highs, with the S&P closing the shortened trading week on Thursday with more than a 1.5% increase; the Dow Jones Industrial Average surged by over 2%. Expectations, however, suggest the stock market could become unsettled as the deadlines loom, particularly if investors misjudge Trump’s resolve to enforce sharper tariffs. Many are concerned that the effective tariff rate could hover near 10%, significantly higher than the historical average of 2.5% this year, yet still below the more alarming levels around 25% that could trigger a recession.
Rick Rieder, BlackRock’s chief investment officer for global bonds, voiced these concerns during the Morningstar Investment Conference in Chicago on June 25. He pointed out that the recent agreement involving Vietnam has only added to anxiety surrounding potential tariff hikes. While the U.S. is imposing a 20% tariff on Vietnamese imports—less than the 46% Trump had suggested in April—it remains above an expected baseline of 10%. This raises concerns about future negotiations with other emerging markets. “What we’ve learned from Vietnam’s trade is that tariffs are more likely to increase than decrease,” Sebastian Ladler, a director at Bank of America, told CNBC.
On another front, the recent U.S.-UK trade agreement, which maintains a 10% tariff, was characterized as a “small victory,” especially since the U.S. already enjoys a trade surplus with the UK. It could prove challenging to replicate this success with a nation carrying a significant trade deficit. Globally, trade deals are at various stages of negotiation, and European officials have expressed optimism about achieving “political” agreements before the July 9 deadline.
There appears to be a general consensus that as long as tariffs don’t escalate to levels that trigger a recession, the stock market could manage steeper tariffs, even if the broader economy struggles. Rieder from BlackRock suggested that higher tariff rates could undermine the U.S. dollar and fuel short-term inflation. Nonetheless, he’s optimistic that any volatility in the stock market will soon be absorbed. Additionally, if the stock market holds, it could benefit from the federal spending bill being pushed through Congress, which is expected to be finalized and sent to the president following its Senate approval.
Yet, short-term concerns about the stock market are growing. Many investors are highlighting that the S&P 500 has returned to record highs even amid unresolved event-driven risks, trading at 23 times forward revenue. Barclays strategist Stefano Pascare has cautioned clients about potential “bubbles” within the current market.
Upcoming calendar notes include customs deadlines on July 8th and 9th, the NFIB Small Business Index due Friday, and wholesale inventories slated for release on July 9.
