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Positive vibes

30 June 2025

De-escalation in the Middle East, and a return to new highs for equities, has set a positive feeling as investors reach midyear.

For the week, the S&P 500 Index was +3.5%, the Dow Jones Industrials +3.8%, and the NASDAQ +4.2%. The communication services, technology, and consumer discretionary sectors led the S&P 500 Index for the week, while the energy, real estate, and consumer staples sectors lagged.

The 10-year US Treasury note yield decreased to 4.284% at Friday’s close versus 4.381% the previous week.

The May Personal Consumption Expenditures (PCE) Price Index showed consumer prices +0.1% month-over-month and +2.3% year-over-year. Core PCE, excluding food and energy, was +0.2% month-over-month and +2.7% year-over-year. The PCE Price Index is an important data point since it is the index the Federal Reserve uses to measure inflation.

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Key economic data for the coming week includes the June Employment Situation Report which is scheduled for release on Thursday. Current CME Fed funds futures show 0.25% reductions in the Fed funds rate for the September, October and December meetings, with some Fed officials saying a reduction starting at the July meeting could also be appropriate.

Trade negotiations are on-going as several countries are nearing the 9 July deadline to complete trade agreements before previously announced tariffs going into effect. Trade negotiations and the US reconciliation bill should occupy the news this week.

We close out the second quarter of the year with expectations for quarterly earnings growth for the S&P 500 Index at 5% year-over-year, with revenue growth of 4.2%. Full-year 2025 S&P 500 Index earnings are expected to grow by 9.1% with revenue growth of 4.9%.

In our ‘Dissecting headlines’ section, we look at updates to trade negotiations.

Dissecting headlines: Trade and tariff updates

Earlier in the month, Canadian Prime Minister Mark Carney said Canada and the US were planning to get a trade deal done within 30 days.

The deal looked to have blown up on Friday when Canada refused to budge on the digital service tax. The digital service tax was originally announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians.

Late Sunday, Canada announced it would rescind the digital services tax. Negotiations are expected to resume this week with the goal of reaching a trade deal by 21 July.

France’s finance minister said he is confident the European Union can secure a trade deal before the 9 July deadline. The EU is currently facing a 50% tariff on nearly all products exported to the US if a deal is not completed.

One key point of the negotiations is the EU agreeing to purchase energy, specifically liquified natural gas, from the US.

Trade talks with India are on-going with news that Indian officials have extended their stay in Washington, D.C. to secure a trade deal prior to 9 July.

The lower tariff of 10% on U. autos to the US goes into effect today versus the prior tariff of 25%. The lower tariff was part of the UK-US trade deal announced on 8 May.

The outcome of trade deals and the US reconciliation bill will set the stage for the second half economic outlook.