The stock market is entering July and the second half of 2025 on a positive note, recovering significantly from a dip in April. Investors are now weighing the sustainability of this momentum against potential headwinds like trade policy uncertainty and elevated valuations.
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Key Takeaways:
- Major U.S. indexes posted solid gains in the first half of the year.
- Some analysts predict further market surges in H2, citing factors like AI’s potential impact on inflation and historically strong July performance.
- Risks include looming tariff deadlines, macroeconomic uncertainty, and current valuation levels compared to historical peaks.
- Key economic data, particularly the June jobs report, will be closely watched next week for signals on economic stability.
Market Performance Snapshot
After experiencing steep declines in early April due to anxieties surrounding President Donald Trump’s tariff policies, which briefly pushed the S&P 500 near bear market levels, stocks have staged a notable comeback. The S&P 500 even hit a new all-time intraday high recently, fueled by optimism around potential trade deals. However, the market saw some volatility at the end of the week following news that trade talks with Canada had ended.
Despite this recent mixed close, the first half of 2025 has been strong for leading U.S. indexes. The S&P 500 and Nasdaq Composite are both up more than 4% year-to-date, while the Dow Jones Industrial Average has advanced over 2%.
Bullish Case for July and the Second Half
Looking ahead, some market strategists see potential for even greater gains. Rick Rieder of BlackRock, for instance, suggested that the artificial intelligence revolution could help lower inflation, which in turn could support higher market valuations in the second half of the year.
Historically, July has also been a favorable month for stocks. According to Ryan Detrick of the Carson Group, the S&P 500 has seen positive returns in July for the past 10 consecutive years and it ranks as the index’s best month over the last two decades. He also notes that July tends to perform well in post-election years. Strong performance in May and June, which appears likely for this year, historically precedes a better July and positive returns in the final six months of the year, happening in 15 out of the last 16 instances.
Key Risks and Headwinds
While momentum is currently positive, skepticism remains regarding a smooth ride through July and beyond. A significant concern is the 90-day tariff pause, set to expire on July 9. While the White House indicated the deadline isn’t “critical” and could be extended, the uncertainty surrounding it could introduce volatility.
Goldman Sachs analyst Andrea Ferrario highlighted that “Elevated macroeconomic and policy uncertainty suggests that equity volatility should remain high in H2, with multiple potential catalysts for volatility such as the July tariff deadlines.” Geopolitical events and potential policy shifts often add layers of complexity to the market outlook.
A container ship sails through a major shipping lane
Another factor giving some analysts pause is current market valuation.
Valuation Concerns
The S&P 500 is currently trading at 23.3 times earnings, based on FactSet data. To put this into perspective, the index’s forward price-to-earnings ratio at the peak of the dot-com bubble in 1999 was 24.4 times earnings.
DataTrek co-founders Nick Colas and Jessica Rabe pointed out that a bullish view on U.S. large caps requires believing that valuations can reach 1999 levels. While they acknowledge that 2025 has a more favorable setup than 1999 (citing factors like potential rate cuts, cheaper oil, and greater S&P Tech exposure), they caution that “current valuations reflect a full glass of optimism.”
Then-President Trump and Federal Reserve Chair Jerome Powell are shown in a split image
Upcoming Economic Data: The Jobs Report and More
A stable U.S. economic environment is seen as crucial for significant stock gains moving forward. This will be particularly in focus next week. With U.S. markets closed Friday and a shortened trading day Thursday for Independence Day, several key economic reports are scheduled for release, primarily on Thursday morning.
Economists surveyed by Dow Jones are anticipating the June nonfarm payrolls report to show growth of 115,000 jobs, down from the 139,000 reported the previous month.
Anthony Saglimbene, chief market strategist at Ameriprise, emphasizes the importance of employment data. “The only time that consumers really pull back is when they fear they’re going to lose their job or they’ve lost their job,” Saglimbene stated. He added that if employment data remains firm, consumers are unlikely to significantly alter their spending, which is positive for the economy despite uncertainties like trade and tariffs.
Oil storage tanks are seen from above
Here is the economic data calendar for the week ahead:
- Tuesday
- 9:45 a.m. ET: S&P Global manufacturing PMI (June)
- 10 a.m. ET: ISM Manufacturing (June)
- 10 a.m. ET: JOLTS (May)
- Wednesday
- 8:15 a.m. ET: ADP employment report (June)
- Thursday
- 8:30 a.m. ET: Nonfarm payrolls (June)
- 8:30 a.m. ET: Initial jobless claims (Week ended June 28)
- 8:30 a.m. ET: International trade (May)
- 9:45 a.m. ET: S&P Global services PMI (June)
- 10 a.m. ET: ISM services (June)
- 10 a.m. ET: Factory orders (May)
- U.S. stock market closes at 1 p.m. ET
- Friday
- U.S. markets closed for Fourth of July holiday
Conclusion
As the market heads into July and the latter half of 2025, investors face a dynamic landscape characterized by recent momentum, historical tailwinds for the month of July, but also significant risks from trade policy and potentially stretched valuations. The strength of the U.S. economy, particularly the health of the labor market, as indicated by upcoming data releases, will be crucial in determining the path forward. Keeping an eye on both economic indicators and policy developments will be key for navigating the second half of the year.
