From the studio

Video: Three reasons why we like US financials (7 min)
Podcast: Looming US government shutdown, Fed independence, and the GENIUS Act (25 min)

Thought of the day

US equities have been supported by growing confidence that a damaging tit-for-tat trade conflict has been avoided, following the weekend deal with the EU and positive news on talks with China. A 0.02% gain in the S&P 500 on Monday left the index closing at a record high for the sixth consecutive trading session, the longest such run in 12 months. US stocks have now gained 8.6% since the start of the year.

But market sentiment could be tested in the coming days as investors brace for several major US data releases, the outcome of the Federal Reserve's policy meeting, and second-quarter results from the bulk of the Magnificent 7 US tech companies. We have highlighted that investors should be prepared for near-term volatility despite trade optimism as the substantial rally in recent weeks has priced in a lot of good news.

A slew of data and earnings results could revive market volatility in the coming days. In addition to the Job Openings and Labor Turnover Survey (JOLTS) for June and a snapshot of consumer confidence compiled by the Conference Board due later today, markets this week will also get a first estimate of second-quarter GDP and a picture of labor market conditions in July. While the Fed is expected to keep interest rates unchanged on Wednesday, these data points could be critical in assessing the central bank’s next move. Additionally, results from Microsoft, Meta, Amazon, and Apple are all due in the coming days, as investors closely monitor AI capital spending and monetization trends.

Threats to Fed independence remain a market risk. Fed Chair Jerome Powell’s press conference is also likely to be scrutinized for any signs of political influence, after the White House has dialed up pressure on the central bank to lower interest rates. We do not believe external political interference with the Fed will make a material difference to monetary policy, and Trump has reiterated he does not intend to fire Powell. But fears about political influence and conjecture over a shift in Fed leadership have the potential to unnerve investors.

The impact of tariffs can’t be overlooked even though recent deals have provided greater clarity. While the 15% tariff rate on most EU and Japanese goods was lower than earlier threats from the US, the higher levies will still create headwinds for growth. Trump also said on Monday that most trading partners that do not negotiate separate deals would soon face tariffs of 15% to 20% on their exports to the US, well above the broad 10% tariff he imposed in April. While our base case is that the resilience of the US consumer should help the US economy avoid recession, a larger-than-expected impact on inflation or more severe hit to corporate margins could quickly change the current optimistic market narrative.

So, while we expect equities to advance over the next 12 months, investors should be mindful of potential market swings in the coming weeks. We think capital preservation or phasing-in strategies can be effective in navigating near-term volatility.