Market Highs: Navigating Tariffs and Tech

The SPY Trader

Fresh news and strategies for traders. SPY Trader episode #1292. Welcome, Spy Traders, to your goto source for market insights! I'm your host, Market Maverick Miles, and it's 6 pm on Monday, July 7th, 2025, Pacific time. We've got a lot to unpack from the market's recent ride, so let's dive right in.Starting with our top headlines, the US stock market has certainly been a rollercoaster, but one that largely keeps climbing. The S&P 500 and Nasdaq Composite have both recently hit new record highs, with the Nasdaq seeing a stunning 31% increase in July alone as of today. The S&P 500 is up nearly 11.71% over the past year! While the Dow Jones Industrial Average has shown a bit more daily fluctuation, it's still holding strong near its alltime high.Moving to key news, trade policy continues to be a central theme. We've seen positive movement with the USVietnam trade deal and hopes for a USIndia and even a USChina deal for rare earths. However, President Trump sent letters today outlining impending 25% tariffs on goods from Japan and South Korea, effective August 1st, and potentially higher tariffs, up to 40% for other partners, with a July 9th deadline for negotiations. This tariff uncertainty previously led to a near 20% decline in the S&P 500 back in April.On the employment front, the June jobs report, released on July 3rd, was stronger than expected, with nonfarm payroll employment increasing by 147,000, and the unemployment rate holding steady at 4.1%. We also saw the Senate narrowly approve President Trump's 'Big Beautiful Bill,' a tax and spending package now heading back to the House, expected to provide fiscal stimulus. Geopolitical tensions in the Middle East, particularly between Israel and Iran, continue to influence oil prices and investor sentiment.In company news, Tesla shares have tumbled recently due to CEO Elon Musk's public discussions and an ongoing feud with President Trump, plus the removal of a 7,500 dollar electric vehicle tax credit. On the flip side, NIKE Inc. saw its stock rise by 4.1% on July 3rd after the USVietnam trade deal was announced. Goldman Sachs Group Inc. was up 2.5% on July 1st. Tractor Supply Co. shares advanced today, and both DoorDash and Uber saw price target lifts from analysts. The 'Magnificent Seven' tech giants generally had a positive second quarter, with AI continuing to be a major tailwind.Now, let's dig into the analysis and what's driving these market movements. The market's current state is a fascinating mix of strong performance and underlying uncertainties. Those new record highs for the S&P 500 and Nasdaq definitely reflect strong investor confidence, especially in the tech sector, fueled by that massive enthusiasm for artificial intelligence. But we're also seeing daytoday mixed performances, especially with the Dow and the S&P 500's recent drop today, thanks to those renewed tariff concerns.Trade policy, hands down, is the most significant immediate uncertainty. President Trump's threats of reciprocal tariffs have repeatedly caused market volatility and selloffs. While deals, like the one with Vietnam, offer temporary relief, that looming July 9th deadline for new tariffs on Japan and South Korea, and the potential for even higher tariffs on others, keeps everyone on edge. We're also expecting these tariffs to contribute to higher inflation later in the year.The Federal Reserve's stance is a cautious 'waitandsee,' with interest rates holding steady at 4.25% to 4.50%. This is largely because they're trying to gauge the unpredictable impact of tariffs on both inflation and economic growth. Despite that strong jobs data, the Fed is hesitant to cut rates further this summer, though the market widely expects a 25basispoint cut at the September FOMC meeting. The recent approval of the 'Big Beautiful Bill' in the Senate, providing fiscal stimulus, further supports the Fed's patient approach, as it might reduce the immediate need for more monetary stimulus.Looking at the broader economy, the June jobs report highlights a resilient labor market, with consistent job additions and a low unemployment rate. This strength is great for consumer spending, which is a huge driver of the US economy. However, we're seeing some warning signs, like an increase in longterm unemployment and a slight dip in labor force participation. While our GDPNow model estimates real GDP growth for the second quarter at 2.6%, some forecasters are predicting a dimmer outlook for the full year 2025, and remember, the first quarter actually saw a 0.5% drop in GDP.In terms of sectors, technology and communication services are booming, primarily thanks to AI, indicating a continued shift towards growth and innovation. Energy has been volatile, linked to geopolitical events and oil prices. Defensive sectors like Utilities and Consumer Staples have actually lagged, suggesting investors are currently favoring cyclical and growth stocks. However, the healthcare sector, despite underperforming in Q2, could offer some attractive valuations given its current discount to the S&P 500.Alright, let's talk about how to navigate this market. Given everything we've just discussed, here are some concrete recommendations:First, maintain diversification but with a tilt towards growth and technology. Continue to allocate a portion of your portfolio to the technology and communication services sectors, especially companies with strong exposure to AI and cloud computing. The ongoing digital transformation and rapid advancements in AI are structural trends that will likely continue to drive growth. Consider ETFs focused on broad technology, software, and semiconductor industries, like the Technology Select Sector SPDR, ticker XLK.Second, monitor trade policy developments very closely. Be prepared for potential shortterm volatility, especially around that July 9th tariff deadline and any future trade deal announcements. Trade policy has proven to be a significant market mover. For your actions, avoid making impulsive decisions based on daily tariff headlines. Focus on the longterm fundamentals of your investments. For shortterm traders, this could present opportunities, but it comes with high risk.Third, prepare for a potential Fed rate cut in Q3. While the Fed is on hold now, position your portfolios for a likely interest rate cut in September. Lower interest rates can support economic activity and corporate borrowing, potentially boosting equity markets, especially for growth companies and potentially smaller capitalization stocks. Review your fixed income allocations; longerduration bonds could benefit if yields continue to fall.Fourth, reevaluate your defensive and cyclical exposures. While defensive sectors like Utilities and Consumer Staples have lagged, they may offer stability if economic uncertainty increases. Conversely, Basic Materials and Financial Services have shown recent strength. The mixed economic signals mean you need agility. Consider tactical shifts: perhaps a slight overweight in financials due to rebounding capital market activity, and potentially healthcare, specifically looking at companies like Eli Lilly, which are leading in highgrowth areas. Be cautious with excessive exposure to highly sensitive cyclical sectors unless clear signs of sustained economic acceleration emerge.Finally, focus on company fundamentals and the earnings outlook. Despite the strong overall market performance, estimated S&P 500 earnings growth for the second quarter has been revised down. Look for companies with robust first quarter corporate earnings and positive guidance. Solid earnings are a fundamental driver of stock prices. Research individual companies, especially those outside the 'Magnificent Seven' where profit acceleration is expected through 2025 and 2026. Pay close attention to earnings calls for direct insights.In summary, the US stock market is riding a wave of bullish sentiment, especially in growth sectors, backed by a resilient labor market. But persistent trade policy uncertainties and a cautious Federal Reserve create a complex environment that demands diligent monitoring and a strategic investment approach.That's all for today's Spy Trader. Thanks for tuning in, and remember, stay nimble, stay informed, and happy trading!