The summer of 2025 is characterized by a combination of macroeconomic and microeconomic factors that will shape the trajectory of the US equity market. While the S&P 500 is trading close to its all-time highs and at a valuation comparable to that at the end of 2021, the strength of the upward momentum will depend on the conjunction of several key variables. Understanding these fundamentals is crucial to grasping the potential and risks awaiting investors over the coming months.
1) The trade war and economic diplomacy, the main source of uncertainty
The trade issue remains the most unpredictable at the start of the summer. The July 9 deadline for the conclusion or failure of tariff negotiations is crystallizing tensions between the United States and its main partners. The prospect of a new wave of tariffs could have a direct impact on production costs, inflation and business confidence. Trade diplomacy is thus the variable most likely to provoke volatility jolts and challenge positive earnings growth expectations. If trade agreements are signed, then this will help to sustain the S&P 500's uptrend.
2) US fiscal policy: the “One Big, Beautiful Bill”
The Trump administration's major tax bill is another hotspot. This piece of legislation calls for an extension of the tax cuts initiated in 2017 and a dramatic increase in the public debt ceiling, to the tune of $5,000 billion. While these measures potentially support consumption and private investment, their medium-term impact on public finances is uncertain. The real issue for the equity market is to assess whether these decisions will lead to a surge in long-term US bond yields. A slippage in US Treasury yields would increase corporate financing costs and undermine currently high valuation multiples. Conversely, if yields remain contained, the equity market's upward momentum could continue.
3) Inflation and the Fed's monetary policy: a delicate balance
The trajectory of inflation, in particular that of the PCE index, will be a major determinant. US inflation is currently slightly below the Fed's target. Several components, notably the services sector, which accounts for almost two-thirds of the PCE basket, are proving relatively stable. Inflationary risks are more likely to come from commodities, particularly if trade tensions reignite. Oil, which accounts for around 11% of the PCE basket, is currently showing no major warning signs, benefiting from a geopolitical calm. Real estate and healthcare are also showing reassuring indicators. Against this backdrop, the Federal Reserve is adopting a cautious stance: while several major Western central banks are moving towards a neutral rate, the Fed is stalling and conditioning its monetary pivot on visibility regarding tariffs and corporate behavior.
The timing of rate cuts is one of the biggest sticking points. According to recent signals, the first rate cut could take place as early as September. However, influential members of the FOMC, appointed by the Trump administration, are arguing for earlier easing. The political pressure is strong: Trump is calling for immediate cuts, but Chairman Powell remains in control of the agenda, taking care to preserve a consensus within the committee.
4) The job market and the likelihood of a recession
The US employment situation is an advanced barometer of the economic cycle. Weekly jobless claims and the aggregate unemployment rate are closely monitored. Historically, a significant rise in unemployment signals that the economic slowdown is already underway. For the time being, the labor market is proving resilient, but the slightest deterioration could alter investors' central scenario and reinforce recessionary expectations. This risk is one of the potential dampeners to the prevailing optimism, unless it were to accelerate the timetable for resuming the cut in the federal funds rate.
5) Second-quarter results and earnings outlook
The second-quarter earnings season is of particular importance. US companies must demonstrate their ability to deliver earnings growth in line with forecasts, even as valuation multiples remain stretched. Maintaining high price levels on the S&P 500 assumes robust earnings growth and confident guidance from management. Failing this, the risk of a correction would be high, especially as the market has already incorporated many positive factors. The weakness of the US dollar and the price of oil, as well as the current momentum in AI, could hold out some pleasant surprises for second-quarter results.
6) Geopolitics and oil, potential sources of volatility
Finally, global geopolitics is a second-order variable, but one that could suddenly become a priority. A rapid deterioration in the international situation, particularly in the Middle East or the China Sea, could affect trade flows and oil prices, fuelling renewed inflation and financial volatility.
Conclusion :
The summer of 2025 promises to be a period of strategic transition for the US equity market. Between trade diplomacy, fiscal policy, inflation, the trajectory of interest rates and earnings momentum, investors will have to deal with an accumulation of uncertain factors. If these uncertainties gradually dissipate, the uptrend could continue. Conversely, the combination of a geopolitical shock, a rebound in inflation and a political stalemate over the federal budget would have the potential to weaken the current rally.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
1) The trade war and economic diplomacy, the main source of uncertainty
The trade issue remains the most unpredictable at the start of the summer. The July 9 deadline for the conclusion or failure of tariff negotiations is crystallizing tensions between the United States and its main partners. The prospect of a new wave of tariffs could have a direct impact on production costs, inflation and business confidence. Trade diplomacy is thus the variable most likely to provoke volatility jolts and challenge positive earnings growth expectations. If trade agreements are signed, then this will help to sustain the S&P 500's uptrend.
2) US fiscal policy: the “One Big, Beautiful Bill”
The Trump administration's major tax bill is another hotspot. This piece of legislation calls for an extension of the tax cuts initiated in 2017 and a dramatic increase in the public debt ceiling, to the tune of $5,000 billion. While these measures potentially support consumption and private investment, their medium-term impact on public finances is uncertain. The real issue for the equity market is to assess whether these decisions will lead to a surge in long-term US bond yields. A slippage in US Treasury yields would increase corporate financing costs and undermine currently high valuation multiples. Conversely, if yields remain contained, the equity market's upward momentum could continue.
3) Inflation and the Fed's monetary policy: a delicate balance
The trajectory of inflation, in particular that of the PCE index, will be a major determinant. US inflation is currently slightly below the Fed's target. Several components, notably the services sector, which accounts for almost two-thirds of the PCE basket, are proving relatively stable. Inflationary risks are more likely to come from commodities, particularly if trade tensions reignite. Oil, which accounts for around 11% of the PCE basket, is currently showing no major warning signs, benefiting from a geopolitical calm. Real estate and healthcare are also showing reassuring indicators. Against this backdrop, the Federal Reserve is adopting a cautious stance: while several major Western central banks are moving towards a neutral rate, the Fed is stalling and conditioning its monetary pivot on visibility regarding tariffs and corporate behavior.
The timing of rate cuts is one of the biggest sticking points. According to recent signals, the first rate cut could take place as early as September. However, influential members of the FOMC, appointed by the Trump administration, are arguing for earlier easing. The political pressure is strong: Trump is calling for immediate cuts, but Chairman Powell remains in control of the agenda, taking care to preserve a consensus within the committee.
4) The job market and the likelihood of a recession
The US employment situation is an advanced barometer of the economic cycle. Weekly jobless claims and the aggregate unemployment rate are closely monitored. Historically, a significant rise in unemployment signals that the economic slowdown is already underway. For the time being, the labor market is proving resilient, but the slightest deterioration could alter investors' central scenario and reinforce recessionary expectations. This risk is one of the potential dampeners to the prevailing optimism, unless it were to accelerate the timetable for resuming the cut in the federal funds rate.
5) Second-quarter results and earnings outlook
The second-quarter earnings season is of particular importance. US companies must demonstrate their ability to deliver earnings growth in line with forecasts, even as valuation multiples remain stretched. Maintaining high price levels on the S&P 500 assumes robust earnings growth and confident guidance from management. Failing this, the risk of a correction would be high, especially as the market has already incorporated many positive factors. The weakness of the US dollar and the price of oil, as well as the current momentum in AI, could hold out some pleasant surprises for second-quarter results.
6) Geopolitics and oil, potential sources of volatility
Finally, global geopolitics is a second-order variable, but one that could suddenly become a priority. A rapid deterioration in the international situation, particularly in the Middle East or the China Sea, could affect trade flows and oil prices, fuelling renewed inflation and financial volatility.
Conclusion :
The summer of 2025 promises to be a period of strategic transition for the US equity market. Between trade diplomacy, fiscal policy, inflation, the trajectory of interest rates and earnings momentum, investors will have to deal with an accumulation of uncertain factors. If these uncertainties gradually dissipate, the uptrend could continue. Conversely, the combination of a geopolitical shock, a rebound in inflation and a political stalemate over the federal budget would have the potential to weaken the current rally.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.