Market Momentum: Trade Deals & Rate Cuts

Fresh news and strategies for traders. SPY Trader episode #1269. Hey there, Spy Trader listeners! This is your Captain Cashflow, bringing you the latest market updates. It's 6 am on Friday, June 27th, 2025, Pacific time, and what a morning it's shaping up to be! We're here to dive into what's moving the markets as we head into the weekend. Let's get right to it!The US stock market is showing some incredible momentum. Major indices are hitting new highs or getting very close. The S&P 500, tracked by the US500 CFD, jumped to 6165 points yesterday, gaining almost half a percent and it's up nearly 13% over the past year. The Nasdaq Composite also had a fantastic day, advancing almost 1% to 20,168, and the Dow Jones Industrial Average gained nearly 1% to 43,386. Even the Russell 2000, our smallcap friend, is up 1.68%.When we look at sectors for the day, Energy, Communication Services, and Industrials were leading the charge, all up over 1%. Information Technology and Financials also saw solid gains. On the flip side, Real Estate and Consumer Staples lagged a bit.Looking at the bigger picture, yeartodate, Industrials are leading the pack, up over 10%, followed by Communication Services and Info Tech. Energy, Healthcare, and Consumer Discretionary are actually down yeartodate, so quite a mixed bag depending on where you're looking.Now, what's driving all this excitement? A big factor is renewed optimism around trade policy. The US and China actually reached a trade agreement, easing those tariff concerns, and there are hints of progress on a trade deal with India too. Less trade uncertainty usually means more happy businesses.Another huge driver is the growing confidence that the Federal Reserve will deliver multiple interest rate cuts this year. We've heard some 'dovish Fed speak,' and while they held rates steady at 4.25% to 4.5% at their last meeting, the market is pricing in a higher than 50% chance of a cut by the September meeting. Lower rates tend to make stocks more attractive.And, of course, corporate earnings are providing a strong backbone. Nike, for example, saw its futures jump 10% after reporting strong results. We're seeing general expectations for positive earnings growth throughout 2025.On the company front, we've seen Nvidia rise to another record high, reclaiming its title as the world's most valuable company. Microsoft, Amazon, and Broadcom also saw good gains yesterday. Meta Platforms jumped earlier in the month after announcing paid advertising on WhatsApp. FreeportMcMoRan surged nearly 7% yesterday, benefiting from higher copper prices. It's not all sunshine, though. The solar sector, including companies like Enphase Energy, has really struggled recently, plunging due to a bill eliminating tax credits for wind and solar projects by 2029. This highlights the risk of regulatory changes. Also, GE Appliances announced a halfbilliondollar investment to bring washing machine production from China to Kentucky, which is great news for US jobs.Let's dig into the analysis. This market rally is fundamentally strong because of those trade developments. Less trade friction means more predictable business environments globally. The expected Fed rate cuts are also a major tailwind, reducing borrowing costs and making equities relatively more appealing. And despite some mixed signals, overall corporate earnings are holding up, providing a solid foundation for stock valuations.However, we need to be realistic about the macroeconomic picture. The US economy actually contracted by 0.5% in Q1 2025, which was the first decline in three years. But don't panic too much, this was largely due to a surge in imports ahead of anticipated tariffs, and the underlying growth rate would have been positive. In fact, the Atlanta Fed is forecasting a strong rebound of 3.4% GDP growth for Q2. Still, forecasts suggest overall GDP growth will decelerate through 2025 and 2026.On the inflation front, Core PCE, the Fed's preferred gauge, is expected to have ticked higher in May. While it hit a fouryear low in April, higher tariffs could lead to it rising towards 3.1% by yearend. So, inflation is definitely something to watch.The labor market is showing some signs of softening. We added 139,000 jobs in May, but job gains are expected to slow significantly in the second half of the year, with the unemployment rate potentially drifting higher to 4.8%. And perhaps most importantly for consumerfacing businesses, consumer spending growth has slowed, and retail sales disappointed in May, indicating easing demand.So, what does this all mean for your portfolio, Spy Trader?Here are some concrete recommendations:First, consider overweighting sectors like Industrials, Communication Services, and Technology. These have shown consistent strong performance, and with improving global trade, industrials could see further benefits, while tech and communication services continue to be innovation powerhouses. Financials also look promising, given the discussions around easing leverage rules for banks and a generally supportive rate environment.However, be cautious with sectors like Consumer Discretionary and Real Estate for now, given the recent slowdown in consumer spending and their underperformance. For Energy, it's a bit more selective. While it had a strong day yesterday, it's negative yeartodate, so careful consideration of commodity price volatility is key.Second, diversify, diversify, diversify! With the market at current valuations and the potential for increased volatility ahead, a welldiversified portfolio that includes some international equities and a blend of growth and value stocks could be your best bet.Third, keep a very close eye on macroeconomic indicators. That means monitoring inflation reports, especially PCE, the upcoming employment figures, and any statements from the Federal Reserve. The big wildcard could be whether those higher tariffs lead to a renewed inflation impulse later in the year.Finally, remember your longterm perspective. Despite some potential shortterm bumps from softening economic data or inflation worries, the underlying resilience of the US economy and the prospect of more accommodative monetary policy generally provide a positive backdrop for the market in the medium to long term. Stick to your longterm plan and don't let shortterm headlines push you into impulsive decisions.That's all for this edition of Spy Trader! This is Captain Cashflow signing off, wishing you profitable trading!