Top Line
On Tuesday, stocks experienced another rise, showcasing notable strength in the face of high geopolitical tensions, historic tariffs, rising interest rates, and a challenging economic backdrop.
Important facts
By noon, the S&P 500, often seen as a key indicator of the US stock market, climbed 1%, adding to a near 1% gain from Monday. This uptick seemed linked to easing tensions between Iran and Israel after US actions against Iran.
According to Ed Yaldeni, founder of Yadeni’s research, optimism grew when Iran did not close the vital oil shipping routes in the Strait of Hormuz this week.
The S&P touched its highest point since February 21st, reaching nearly 6,090, just 1% shy of the all-time high set back in February.
The Blue Chip Dow Jones Industrial Average also surged, marking a two-week high with a gain of 430 points, while the tech-heavy Nasdaq rose sharply by 1.4%, hitting a four-month peak.
Big numbers
Over 25%. That’s the increase in the S&P since its lowest point in April, just before Trump announced significant tariffs deemed “liberation day.”
Why stocks are rallying despite high uncertainty
Economic uncertainty is at an “abnormally rising” level, as US top policymaker Jerome Powell suggested last week. He typically notes that uncertainty can disrupt Wall Street evaluations. Yet, despite ongoing warnings of sustained higher inflation due to environmental slowdowns and tariffs, along with consumer sentiment lagging behind 2008 levels, the stock market remains robust. Goldman Sachs economists Ronnie Walker and David Merricle mentioned in a memo that many investors seem to trust their hard data. Additionally, Wells Fargo strategist Chris Harborland suggested that deregulation, tax cuts, and lower interest rates might counterbalance the negative impacts of tariffs on stocks.
Additional thoughts
Noteworthy companies like Microsoft, the world’s top company by value, and JPMorgan Chase, the largest bank in the US, hit new record stock prices on Tuesday. Stocks of major AI players such as Alphabet, Amazon, and Nvidia also saw increases.
Important background
The S&P has had a tumultuous journey toward modest returns, with Trump’s second quarter showing a 1% increase since January. After a solid start, stocks began to dip as Trump introduced unexpectedly high trade barriers. The index hit a low in April when Trump announced a record average effective tariff rate of 23%, the highest in over a century. Based on JPMorgan’s calculations, the average import tax has since decreased to 13%. While recent inflation data is still emerging, it hasn’t yet significantly influenced consumer prices.
