June's Wall Street Boom is a Big Bet Against the Doomsayers

Wall Street has embraced a wave of summer enthusiasm, as markets wrap up their strongest broad-based rally in over a year. Easing fears of a global trade war have fueled a surge in demand across asset classes — from tech equities to high-yield bonds — generating a buying spree that reflects renewed investor confidence.

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The S&P 500 just notched its first record high since February, reflecting a resurgence in risk appetite even amid a backdrop of lingering economic and policy uncertainty. Despite concerns over stretched valuations and ambiguous government actions — including a surprise move by the White House on Friday to threaten an end to digital services tax talks with Canada — investor optimism is carrying the day.

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Market participants are largely focusing on signs that inflation is beginning to ease and consumer confidence is on the mend, even though rising jobless claims, a sluggish housing market, weak global trade, and fading hopes for an immediate Fed rate cut remain points of concern.

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Rather than triggering caution, these conflicting signals have only strengthened bullish sentiment, echoing levels not seen since President Donald Trump returned to the Oval Office. The result is a synchronized rally across stocks, bonds, commodities, and credit markets — the most comprehensive monthly gain since May 2024.

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The volatility that rocked markets just weeks ago has all but vanished, replaced by an aggressive push into riskier assets. Retail investors are returning to the market, while quantitative funds and systematic strategies have significantly increased their exposure. But this optimism rests heavily on the economy continuing to deliver enough positive news to support current asset valuations.

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“The market is displaying a level of complacency,” said Raphael Thuin, head of capital market strategies at Tikehau Capital. “Whether it's unresolved trade disputes, slowing global growth, geopolitical risks, fiscal imbalances, or rising rates — the markets appear to be assuming that the best-case scenario will prevail.”

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While pessimists have repeatedly been proven wrong in recent months, some on Wall Street are still issuing warnings. JPMorgan, for example, estimates the likelihood of a U.S. recession at 40%, citing the drag from tariffs and waning consumer spending, which is colliding with declining business confidence. Many expect global growth to weaken in the second half of 2025.

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Although Friday’s consumer sentiment data showed a four-month high for June, suggesting that inflation expectations are improving, other recent reports have painted a less rosy picture. New home sales in May posted their steepest drop in nearly three years. Continued claims for unemployment insurance are at their highest since 2021, reinforcing the view of a softening labor market. And personal spending declined in May — the worst showing since early this year.

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These developments came alongside testimony from Fed Chair Jerome Powell, who told Congress that the central bank might have already begun cutting interest rates if not for the uncertainty surrounding Trump’s trade agenda. Other Fed officials echoed his cautious stance, indicating they’ll need more time to determine whether tariff-related inflation pressures will endure.

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Nonetheless, the risk-on mood in markets remained intact. The S&P 500 soared 3.4% this week, ending at an all-time high. Junk bonds advanced for the fifth consecutive week as 10-year Treasury yields dropped by 10 basis points. Bitcoin rebounded past $100,000, and Coinbase Global Inc. reached its first record since 2021. Across the board — from U.S. equities to commodities and long-dated Treasuries — assets posted their best collective monthly performance in over a year.

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Momentum-driven investment products have ramped up exposure, with a Nomura Securities gauge forecasting the largest buying push since at least 2004. Trend-following quant strategies have also shifted back to long positions in equities after a brief period of bearishness, Barclays noted.

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Still, some market professionals are urging caution. Julie Biel, portfolio manager and chief market strategist at Kayne Anderson Rudnick, noted that the current rally could prove fragile. “People forget that FOMO isn’t about confidence — it’s fear-based,” she said. “If we see weakening profit margins, disappointing earnings, or worsening employment data, there isn’t much real support underneath this market. We learned earlier this year that a narrow rally doesn’t equal a healthy one.”

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Indeed, under the surface, some signs of doubt are emerging. Funds tied to high-risk sectors like technology disruptors, small-cap stocks, and metals are seeing traders seek protection. Options data on the ARK Innovation ETF, iShares Russell 2000 ETF, and VanEck Gold Miners ETF show a growing demand for downside hedges, indicating fears of a pullback.

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Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, is steering clear of high-flying large caps, citing elevated valuations on the S&P 500. Instead, he prefers undervalued segments like small and mid-cap stocks as well as international markets. “People are still conditioned to buy the dip,” he said. “Even when economic data comes in weak, it’s largely ignored because it hasn’t yet reliably signaled a downturn.”

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As markets move into the second half of the year, the challenge for investors will be balancing optimism with realism — especially as fundamentals start to face closer scrutiny.

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