S&P 500 inches toward record high as markets brush off macro worries

Geopolitical risks have stabilised somewhat, contributing to market gains

US stocks advanced on  June 26 with the S&P 500 approaching record highs, driven by optimism around economic resilience and easing geopolitical tensions.

The S&P 500 gained 0.6 percent, closing just 0.3 percent below its all-time intraday high of 6,204.17, set on June 2, 2025. The Nasdaq Composite outperformed, rising 0.7 percent, fueled by strong performance in technology stocks, particularly in AI and semiconductor sectors. The Dow Jones Industrial Average climbed 182 points, or 0.5 percent, to 43,271.02. At the market open, the S&P 500 rose 0.4 percent, the Nasdaq gained 0.5 percent, and the Dow added 210 points, or 0.6 percent, positioning the indices near their March 2025 peaks.

The rally follows a robust recovery, with the S&P 500 and Nasdaq up over 25 percent from their April 2025 lows, when fears of escalating trade tariffs and geopolitical instability dampened sentiment. Despite recent volatility, the market has been buoyed by strong corporate earnings, particularly in technology, and positive economic indicators. However, concerns about sustainability persist due to fiscal policy uncertainties and potential trade disruptions.

Economic data continues to support market optimism. Initial jobless claims for the week ending June 21, 2025, fell to 230,000, below the consensus estimate of 238,000, signaling a resilient labor market despite tighter monetary policy. This follows a mixed labor report earlier in June, where claims rose to 247,000, exceeding expectations of 236,000, hinting at some softening. However, the lower-than-expected claims this week alleviated concerns about labor market deterioration.

The Consumer Price Index (CPI) report for May 2025, released earlier this month, showed inflation cooling slightly, coming in below economists’ forecasts. This has fueled speculation about potential Federal Reserve rate cuts in late 2025, with analysts anticipating one or two reductions, possibly bringing the federal funds rate to around 4 percent by year-end. The Commerce Department’s upcoming Personal Consumption Expenditures (PCE) report, due June 27, 2025, is expected to provide further insight into inflation and consumer spending trends.

Geopolitical risks have stabilised somewhat, contributing to market gains. On June 24, 2025, President Trump announced a US-brokered ceasefire extension between Israel and Iran, following a period of heightened tensions that saw oil prices spike to $120 per barrel amid fears of supply disruptions through the Strait of Hormuz. The ceasefire, while fragile, has held, with no reported strikes since Trump’s statement. This has led to a sharp decline in oil prices, with West Texas Intermediate futures dropping to $64.81 per barrel, down 6 percent from earlier highs. The stabilization has boosted investor risk appetite, particularly in sectors like airlines and technology, which benefited from lower energy costs.

However, risks remain. Analysts warn that any escalation in the Israel-Iran conflict could trigger volatility, with potential disruptions to global oil supply posing a significant threat. President Trump’s planned diplomatic talks with Iran in early July 2025 aim to secure a more permanent resolution, but markets remain cautious.

President Trump’s “One Big Beautiful Bill Act,” a tax-cutting and spending initiative, remains a focal point for investors. While the bill has spurred optimism about economic growth, concerns about its fiscal impact are growing. The US Treasury Secretary Scott Bessent has highlighted the need to reduce annual deficits to 3 percent of GDP, but the bill’s current form could exacerbate the federal debt, pushing 30-year Treasury yields above 5 percent, a level not seen since 2007. This has raised fears of higher borrowing costs impacting corporate profits and consumer spending.

Trade policy uncertainties also loom large. While the US and China agreed in May 2025 to temporarily slash tariffs from over 100 percent to lower levels for 90 days, recent comments from Trump suggest challenges in negotiations. On June 5, 2025, he accused China of violating trade agreements, causing a brief market dip. Ongoing US-China trade talks, with a focus on rare earth minerals, are critical, as any reimposition of tariffs could disrupt global supply chains and fuel inflation. Federal Reserve Chair Jerome Powell has emphasized caution, noting that tariffs could lead to a “one-time jump” in prices, with risks of more persistent inflation.

The technology sector has been a key driver of the rally, with AI-related stocks like Nvidia (NVDA) and Broadcom (AVGO) gaining 4 percent and 2.5 percent, respectively, on June 25, 2025. Tesla (TSLA) rebounded strongly, up 10 percent this week, following the successful launch of its robotaxi service in Austin, Texas, on June 12, 2025, despite earlier volatility from tensions between CEO Elon Musk and President Trump. Conversely, consumer discretionary stocks like Campbell’s (CPB) and Smith & Wesson (SWBI) faced pressure, with Campbell’s down 2 percent due to weak demand and Smith & Wesson plunging 20 percent after reporting declining profits.

Cryptocurrency-related stocks, such as Coinbase (COIN) and Riot Platforms (RIOT), surged as bitcoin topped $107,000, driven by optimism around a proposed cryptocurrency regulation bill. The energy sector, however, lagged, declining 2.5 percent this week as oil prices fell.

Analysts remain divided on the market’s outlook. Wolfe Research’s Rob Ginsberg noted that the S&P 500’s resilience, despite macro and geopolitical challenges, suggests potential for a run at record highs. However, Barclays’ Venu Krishna warned that Middle East tensions could spark volatility, with volatility control funds increasing equity exposure to 45 percent from April lows, raising risks of sharp pullbacks. Bank of America’s fund manager survey indicated growing preference for international stocks over US equities for the next five years, citing concerns about tariff impacts and geopolitical risks.