Market Peaks & Policy Pivots

Fresh news and strategies for traders. SPY Trader episode #1290. Alright everyone, welcome back to Spy Trader, your goto podcast for navigating the ups and downs of the stock market! I'm your host, Monty Moneybags, and it's 6 am on Monday, July 7th, 2025, Pacific time. We've got a lot to cover this morning, so let's jump right into the financial headlines that are shaping our world. The US stock market is definitely on a positive roll. Both the S&P 500 and the Nasdaq Composite recently hit fresh record highs just last week, on July 2nd. The S&P 500, currently sitting around 6,279, is up 0.83% in the last 24 hours, 2.74% over the past week, and a solid 5.74% over the last month. Yeartodate, it's up over 6%, and an impressive 14.02% over the last year. The Nasdaq, now at 20,601, has seen similar gains, up 1.02% in the last day and 5.55% over the month. Even the Dow Jones, trading at 44,828, is showing good momentum with a 0.77% gain. While some technical indicators suggest these indices might be 'overbought,' the broad market rally indicates a healthy underlying base. Now, shifting gears to sector performance, we've seen some interesting rotations. Towards the end of last week, materials and healthcare stocks posted the largest gains, suggesting a potential shift away from the big tech and communication services names that have been leading the charge. Speaking of news, trade policy continues to be a central focus. The US recently reached a new agreement with Vietnam, which is a positive sign, but a major deadline looms: the Trump administration has set an August 1st deadline for countries to finalize trade deals or face increased tariffs, reverting to April levels. Plus, a 90day tariff pause expires on July 9th, so keep an eye on that. On the economic front, we got a hotterthanexpected jobs report for June, showing 147,000 nonfarm payrolls added, well above the 110,000 forecast, and the unemployment rate unexpectedly fell to 4.1%. This resilient labor market data has definitely boosted market sentiment. And just a note, US markets had an abbreviated session on July 3rd for the Independence Day holiday, so volumes were lighter. From the corporate earnings side, strong reports are expected to continue supporting US equities. Looking at specific companies, Datadog, ticker DDOG, saw its stock jump 11% in premarket trading last week after news broke that it would be joining the S&P 500. On the flip side, Tesla, ticker TSLA, had a tough time recently, partly due to reports of Elon Musk considering starting a third political party, and also after reporting a 14% yearoveryear decline in vehicle deliveries last quarter, missing Wall Street expectations. While big tech names like Nvidia, Microsoft, and Apple are huge market movers, some were down slightly last week as investors rotated into other sectors. So, what does all this mean for us, the savvy Spy Traders? The current market strength is largely driven by that resilient economic data, especially the robust jobs report, and the temporary easing of trade tensions. The S&P 500 and Nasdaq hitting new highs definitely signals a bullish sentiment, possibly fueled by expectations of continued economic stability and those anticipated Federal Reserve rate cuts later in the year. However, we're navigating a complex landscape. That August 1st tariff deadline and the July 9th expiration of the tariff pause introduce significant uncertainty that could easily trigger volatility. While trade tensions have deescalated a bit, the potential for tariffs to reignite inflation, possibly pushing core PCE inflation towards 3.1% by yearend, and impact corporate profit margins, remains a real concern. We did see a slight decrease in real GDP in the first quarter of 2025, and economists are forecasting a summer slowdown, with GDP growth potentially decelerating to 0.8% yearoveryear by the fourth quarter. This suggests that while the economy is resilient, growth is moderating. The Fed's held its policy rate steady, waiting for more clarity on tariffs, but their June projections still point to two interest rate cuts this year. So, for our trading recommendations, based on what we're seeing, first off, continue to maintain diversified portfolios with a lean towards US equities. Given the ongoing strength in the US markets and the potential for continued strong corporate earnings, it makes sense to have a strategic allocation to US large and midcap stocks. Diversification across sectors is crucial, as market leadership might broaden beyond just tech. Secondly, consider overweighting financials, healthcare, and consumer discretionary sectors. Edward Jones specifically recommends these, suggesting they're wellpositioned. Financials could benefit from a stable labor market, and healthcare and consumer discretionary sectors could see continued demand as the economy holds steady. Third, keep a very close eye on those tariff negotiations. The August 1st deadline is a critical event. Stay informed about trade developments, as a reescalation could negatively impact various sectors, especially those relying on global supply chains. You might even consider defensive positions or hedging strategies if tensions intensify. Fourth, stay attuned to inflation data and any commentary from the Federal Reserve. While inflation has been contained, the risk of tariffdriven inflation is real, and the Fed's path for interest rate cuts will heavily depend on this data. Fifth, be selective in the technology and communication services sectors. While they've been incredibly strong, some indicators suggest they might be temporarily overbought. Focus on companies with strong fundamentals, clear growth trajectories, and sustainable competitive advantages rather than just chasing momentum. Sixth, consider opportunities in small and midcap stocks. These indices have actually outperformed recently, which could signal a broadening of the rally and potential value in these segments. Seventh, always review individual company events and earnings. News like Datadog joining the S&P 500 can lead to significant stock movements, so staying informed about earnings reports and corporate developments is vital for individual stock selection. And finally, prepare for potential volatility. Despite the current positive sentiment, policy uncertainty, particularly around tariffs and fiscal policy, could introduce choppiness in the second half of 2025. Having a welldefined investment strategy and risk management plan is always your best defense. That's it for this edition of Spy Trader. Thanks for tuning in, and I'll catch you next time!