A Record High is Within Striking Distance of the S&P 500

U.S. stock futures and Treasury markets remained relatively steady as investors prepared for a second day of testimony from Federal Reserve Chair Jerome Powell. This follows a milestone moment on Wall Street, with the Nasdaq 100 closing at a record high.

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Futures tied to the S&P 500 showed minimal movement, reflecting a cautious market tone. Meanwhile, oil prices saw a modest rebound after suffering their steepest two-day loss since 2022. Brent crude rose about 1%, trading near $68 a barrel. The U.S. dollar also inched higher, gaining 0.1%.

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U.S. government bonds held their ground after Tuesday’s rally, which saw the 10-year Treasury yield fall by five basis points. That move came in response to Powell’s remarks to the House of Representatives, which encouraged investors to believe the central bank may accelerate interest rate cuts in 2025.

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According to swap market data, traders now see a 15% chance of a quarter-point cut as soon as next month and are broadly expecting at least two reductions by year-end. Powell is scheduled to deliver his testimony before the Senate on Wednesday, which could further influence market expectations.

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After a recent stretch of market turbulence — triggered by the brief but intense conflict between Israel and Iran — attention is once again shifting toward the U.S. economy. Investors are assessing how ongoing trade tensions and rising fiscal challenges might impact corporate profits and economic growth. The ceasefire between Israel and Iran appeared to be holding as of Wednesday, with both nations declaring some form of strategic victory, allowing markets to regain a degree of composure.

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Lilian Chovin, head of asset allocation at Coutts, noted that market sentiment is transitioning from concerns about war to issues surrounding trade policies and central bank decisions. “We are in a phase where slightly weaker growth is actually being welcomed by markets,” she explained, “because it fuels hopes that interest rate cuts will happen sooner.” The notion is that a softening economic outlook might give central banks more reason to ease monetary policy, which in turn can support asset prices.

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The S&P 500, which has now bounced back sharply from the slump it experienced in April due to fears over new tariffs, is trading within 1% of its all-time high. Yet some analysts are beginning to sound a note of caution.

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They argue that investor sentiment may be too optimistic given the range of unresolved issues. Chief among them are renewed risks of geopolitical instability and the fast-approaching tariff deadline set by U.S. President Donald Trump, now just two weeks away. Progress on securing new trade agreements has been minimal, raising the possibility of further market volatility.

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Bhanu Baweja, chief strategist at UBS Group AG, told Bloomberg TV that the market may be underestimating the risks ahead. “There is no real pricing in of tariff risks as we approach July 9,” he said. “What’s needed right now is caution. We’re not chasing the rally any further.”

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The current calm in the markets may prove temporary. Investors are bracing for Powell’s Senate testimony, which could offer more clues on the Fed’s outlook for inflation, labor conditions, and monetary policy. Meanwhile, the countdown to the White House’s tariff decisions is creating a layer of uncertainty that could reawaken market volatility at any time.

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Overall, while U.S. stocks continue to hover near record levels and bond markets reflect growing hopes for looser monetary policy, the outlook remains clouded by unresolved trade tensions and fragile geopolitical stability. As such, analysts are urging investors not to become too complacent. The market’s recent resilience may be tested again soon if either the Fed’s tone changes or if trade talks fail to produce meaningful progress.

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