Stocks are back near record highs. Investors still aren't buying this rally.

Stocks

Summary:

Despite stocks nearing record highs, investor sentiment remains cautious due to economic and geopolitical uncertainty. Low equity exposure and risk appetite may actually support further gains, suggesting the rally still has room to run.

Stocks came under pressure Tuesday but continue to hover near record highs, staging a ferocious comeback since their April lows.

But despite the rally, investor sentiment remains cautious as markets contend with a wave of uncertainty ranging from Trump’s tariff rollout and its inflationary ripple effects to the Fed’s murky rate-cutting path and, most recently, renewed geopolitical tensions in the Middle East.

Even as consumer sentiment has begun to rebound from its early-year lows, investor positioning tells a different story.

Data from market research firms SentimenTrader, Ned Davis Research, and Vanda, cited by Charles Schwab, show that equity exposure remains below historical averages, with mutual funds, hedge funds, and retail traders slowly rebuilding their risk positions.

That caution was echoed in Bank of America’s latest Global Fund Manager Survey released Tuesday, which showed a sharp drop in risk appetite with a net 28% of investors taking a more-cautious-than-normal level of risk in their portfolios.

Stocks are back near record highs. Investors still aren't buying this rally._1

The survey also revealed that equity allocations remain well below average, currently sitting one standard deviation below their long-term norm.

However, that caution, some strategists argue, may be more of a tailwind than a headwind for stocks.

"Sentiment can still be negative even with stocks back at all-time highs," Kevin Gordon, senior investment strategist at Charles Schwab, told Yahoo Finance.

Gordon described the recent rally as "definitely still hated," but a dynamic that's not unusual following sharp, unexpected sell-offs.

Tom Lee, head of research at Fundstrat, wrote in a recent client note that investors may be overlooking a stronger investment backdrop compared to early 2025, with more clarity on trade and tax policy and a potentially more dovish Fed.

"We’re so close to all-time highs, and yet investors are mostly negative still," he said. "This remains one of the most-hated rallies."

Strategists across Wall Street have also grown more bullish on stocks in recent weeks.

No fewer than 11 Wall Street firms lowered their S&P 500 targets amid the market sell-off in April, but at least eight of those have since raised their bets on where the index ends 2025.

The median S&P 500 target now sits at 6,100, signaling further upside potential.

While investors are participating in the rebound, Schwab's Gordon said the gains have been concentrated in sectors outside of Big Tech, which has led the bull market over the past two years. He called out strength in commercial services like logistics and airlines, while more economically sensitive sectors like freight and goods production continue to lag.

According to Gordon, that points to a more selective rally and could be a contrarian signal that stocks still have room to run.

"The pain trade," he added, "is probably still supportive for the equity market to go a little bit higher."

Source: finance.yahoo

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Glendon

Commodity

The International Energy Agency forecasts global oil demand to peak and plateau by the end of this decade, with China's demand peaking earlier than previously anticipated.
While oil supply is expected to outpace demand growth, geopolitical risks and trade tensions introduce significant uncertainties to the oil market.
There is a notable divergence in viewpoints between the IEA and OPEC regarding future oil demand, with OPEC predicting continued growth beyond the current decade.

A peak in global oil demand is still on the horizon, the International Energy Agency (IEA) said on Tuesday, doubling down on its forecast that demand will plateau by the end of the decade.

China’s oil demand, which increased by a cumulative 6 million barrels per day (bpd) in the decade to 2024, is set to peak earlier than previously expected, the agency said in its annual Oil 2025 report for the medium term.

While China – the world’s top crude oil importer – accounted for 60% of the global increase in oil consumption in 2015-2024, “the picture to 2030 looks very different,” the IEA said.

China’s demand is on track to peak in 2027 – two years earlier than previously thought – amid “an extraordinary surge in EV sales, the continued deployment of trucks running on liquefied natural gas (LNG), as well as strong growth in the country’s high-speed rail network, along with structural shifts in its economy.”

Global oil demand is forecast to rise by 2.5 million bpd from 2024 to 2030, reaching a plateau around 105.5 million bpd by the end of the decade, per the agency’s latest estimates.

Annual global growth will slow from about 700,000 bpd in 2025 and 2026 “to just a trickle over the next several years, with a small decline expected in 2030, based on today’s policy settings and market trends,” the IEA said.

The agency expects below-trend economic growth, weighed down by global trade tensions and fiscal imbalances, and accelerating substitution away from oil in the transport and power generation sectors.

At the same time, the increase in global oil supply is “set to far outpace demand growth in coming years,” according to the agency.

“Based on the fundamentals, oil markets look set to be well-supplied in the years ahead – but recent events sharply highlight the significant geopolitical risks to oil supply security,” IEA Executive Director Fatih Birol said.

If no major supply disruptions occur, the oil market will be comfortably supplied through 2030, the agency reckons, but warned that “significant uncertainties remain, especially given rising geopolitical risks and heightened trade tensions.”

The IEA’s “peak demand on the horizon” narrative once again clashes with OPEC’s view of growing oil demand at least into the 2040s.

Just last week, OPEC Secretary General, Haitham Al Ghais, said that oil demand would continue growing over the coming decades as the world’s population increases.

“Simply put, there is no ‘peak in oil demand’ on the horizon,” Al Ghais said at The Global Energy Show Canada in Calgary, Canada.

Source: Zero Hedge

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Adam

Economic

Stocks

Not much seems to faze the stock market these days even as risks abound, from war in the Middle East, to trade tensions, to slowing growth. But Wall Street’s biggest fear arrives today when the Federal Reserve meeting ends and Chair Jerome Powell explains the central bank’s outlook.

There’s pretty much no expectation that the Fed will reduce interest rates at this meeting after holding steady in the past three instances. But between the so-called dot plot, which outlines where central bankers think the fed funds rate is headed, and Powell’s press conference after the meeting, traders expect to have a much clearer idea of what they’re thinking.

Wall Street’s hope is that the Fed see cuts coming in the fall, with swaps traders pricing roughly 56% odds of a reduction in September. The fear is that it doesn’t — and that a hawkish tone from Powell will be the trigger that sends equities prices tumbling from near all-time highs.

“If Powell signals the Fed is going to keep playing the ‘wait-and-see’ game before cutting rates, the market will hate that and stocks will likely sell off,” said Dennis Dick, head of markets structure and a proprietary trader at Triple D Trading. “His tone is crucial. Trade wars. Geopolitics. Growth. No one knows how all of this will play out. Any signals cuts are coming would ignite a rally.”

It’s been a wild 2025 for the stock market. The S&P 500 Index is up 1.7% for the year and stands less than 3% from a record. It almost slammed into a bear market in April after President Donald Trump unveiled his sweeping global tariffs, but it immediately took off a week later when he delayed most of his levies.

The S&P 500 has traded sideways for the last five weeks, rising 0.7% since May 20. Even the fighting between Israel and Iran hasn’t really knocked the market off its pins, with the S&P 500 down just 1% since Israel launched its bombing campaign last Thursday, even as oil soars to its highest level since January. But at the same time, optimism on global trade, resilient inflation data and solid corporate earnings are already largely priced in, leaving little fuel to power stocks higher.

“If the conflict in the Middle East turns into a full-scale war leading to a lasting rise in oil prices, it’s going to be a long slog for stocks this summer if inflation pressures pick up,” said Seth Merrill, chief investment officer at Crewe Advisors. He’s betting that bond proxy shares like utilities and real estate will be more susceptible to swings today, given their sensitivity to the rates outlook.

Hawkish Fear

That’s why investors will pore over the Summary of Economic Projections, the formal name of the dot plot, and carefully parse Powell’s remarks. The central bank’s announcement is scheduled at 2 p.m. in Washington, with Powell’s press conference 30 minutes later.

Wall Street is largely bracing for the Fed to take a hawkish stance.

Bloomberg Intelligence chief US economist Anna Wong thinks the central bank “won’t flinch” because of policy uncertainty tied to the Trump administration’s trade, tax and regulatory policies. Mark Cabana, head of US rates strategy at Bank of America, wrote in a note to clients Monday that he and his team see the Fed remaining “comfortably in wait-and-see mode,” with just one rate cut planned for 2025. And Andrew Tyler, head of global market intelligence at JPMorgan Chase & Co., sees heightens potential for a pullback creating a buy-the dip moment.

Other money managers like Jim Worden, chief investment officer at the Wealth Consulting Group, have argued for Powell to shift the focus back to the employment part of the Fed’s dual mandate.

Indeed, inflation pressures have improved after the Fed last cut rates in December, with US consumer prices rising in May by less than forecast for the fourth month in a row. But this comes at a time when other parts of the economy are showing signs of weakness in the aftermath of tariffs, including a plunge in May retail sales and reduced US services and manufacturing activity, along with slowing private payrolls growth.

“If Powell acknowledges the labor market is softening while inflation is cooling — that’s a buy signal for stocks because it means he is open to rate cuts later this year,” Worden said. “But if he pours cold water all over that idea, or even alludes to no cuts the rest of year, markets will be rattled. Traders will wonder ‘What does he know that we don’t? Does he expect inflation to pick in the second half of the year?’”

Betting On Calm

That leaves options pros betting on a calmer than normal Fed day, with the S&P 500 projected to move 1% in either direction, according to data compiled by Piper Sandler & Co. That’s the smallest implied swing ahead of a Fed day since January and just below the average realized move of 1.1% over the past 18 months.

That said, Wall Street pros see an upside if the market falls on hawkish chatter. Triple D Trading’s Dick is using any selloffs to pile into high-flying technology shares tied to the artificial-intelligence boom. While, the Wealth Consulting’s Worden is looking to buy cheaper big tech shares like Broadcom Inc. and Marvell Technology Inc., although he’ll wait until the dust settles if the market gets too volatile after the Fed chief’s presser.

Powell has repeatedly described the economy as “solid.” But US job expansion moderated in May while private payrolls growth slowed. Yet the stock market has been blowing all of this off as economists and sell-slide strategists lower their odds that trade wars will rekindle what traders fear most: stagflation.

The bottom line is at this point so much is unknown, from the Fed’s rate path, to earnings growth, to how White House policy is implemented and affects Corporate America. So just about any interpretation of where we are has validity.

Jamie Cox, managing partner at Harris Financial Group, is running counter to the consensus and betting that Powell may open the door to cutting rates as early as July.

“Markets have things priced all wrong thinking cuts will come even further out beyond September,” Cox argued, who plans to pile into US tech shares if the market sells off, or rallies on Wednesday. “I’m hoping to hear him say ‘inflation data has come in better-than-expected,’ which to me signals they’re not as fearful of stagflation.”

Source: Bloomberg

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Michelle

Forex

Economic

The Federal Reserve’s June policy meeting arrives at a critical moment for the stock market, with the benchmark S&P 500 sitting around 3% below its February record high despite a barrage of lingering uncertainty, including persistent trade war fears and fresh geopolitical headwinds between Israel and Iran. FOMC Preview: Fed in Wait-And-See Mode As Powell Faces Barrage of Uncertainty_1

Source: Investing.com

As such, a lot will be on the line when the Fed delivers its latest interest rate decision at 2:00 PM ET on Wednesday. While the US central bank is widely expected to hold rates steady at 4.25%-4.50%, investors are eager for any hints about whether it might be poised to lower borrowing costs in the coming months.

Markets currently expect two rate cuts by the end of this year, with the next one likely in September, as per the Investing.com Fed Rate Monitor Tool.

Alongside the rate decision, Federal Open Market Committee (FOMC) officials will also release their new quarterly economic projections for interest rates, inflation, and unemployment, known as the ‘dot plot’.

The last dot plot, released in March, revealed a consensus among Fed officials for two cuts in 2025.

If FOMC policymakers stick with that forecast, it could reinforce bullish sentiment—especially since recent economic data shows some softening. But if the outlook shifts to just one cut (or pushes the timeline further out), expect a market recalibration and possible pressure on stocks and risk assets. FOMC Preview: Fed in Wait-And-See Mode As Powell Faces Barrage of Uncertainty_2

Source: Investing.com

Post-meeting comments from Fed Chair Jerome Powell at 2:30 PM ET will be closely watched and could move the market as his words often carry as much weight as the policy decision itself. Powell is likely to emphasize a data-dependent approach, citing the need for further clarity on the economic and inflationary impact of President Donald Trump’s trade tariffs before adjusting rates.

Speaking of Trump, the president’s repeated public calls for rate cuts and criticism of Powell could complicate the Fed’s messaging, though Powell is expected to reaffirm the central bank’s independence.

Market Implications

Financial markets may see muted initial reactions to a widely anticipated hold, but equities, bonds, gold, and the US Dollar could move based on the updated dot plot and Powell’s comments.

If the Fed signals a dovish pivot—hinting at potential rate cuts in the near future due to confidence in declining inflation—equity markets could rally, as lower borrowing costs typically support corporate earnings and valuations. Growth stocks, particularly in technology, which are sensitive to interest rates, would likely see the most benefit.

Bond yields, such as those on the 10-year Treasury, could decline in anticipation of looser monetary policy, boosting fixed-income assets. FOMC Preview: Fed in Wait-And-See Mode As Powell Faces Barrage of Uncertainty_3

Source: Investing.com

Conversely, a hawkish stance—suggesting that rates will remain higher for longer to combat stubborn inflation—could pressure risk assets like stocks, as higher interest rates increase borrowing costs and dampen economic growth prospects.

In this scenario, the US dollar might strengthen, as elevated rates attract capital inflows, while commodities like gold could face headwinds due to a stronger currency and higher opportunity costs. FOMC Preview: Fed in Wait-And-See Mode As Powell Faces Barrage of Uncertainty_4

Source: Investing.com

Source: Investing

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Warren Takunda

Economic

China–U.S. Trade War

The inflation-fighters at the Federal Reserve are expected to keep their key interest rate unchanged Wednesday for the fourth straight time. That’s likely to shift attention to how many interest rate cuts they forecast for this year.

It’s widely expected that the 19 Fed officials that participate in the central bank’s interest-rate decisions will project two rate cuts for this year, as they did in December and March. But some economists expect that one or both of those cuts could be pushed back to 2026.

The Fed will almost certainly keep the short-term rate it controls at about 4.3%, economists say, where it has stood since the central bank last cut rates in December. Since then, it has stayed on the sidelines while it evaluates the impact of President Donald Trump’s tariffs and other policy changes on the economy and prices.

Inflation has been cooling since January, and many economists say that without the higher import taxes, the Fed would likely be cutting its rate further. According to the Fed’s preferred measure, inflation dropped to just 2.1% in April, the lowest since last September. Core inflation — which exclude the volatile food and energy categories — was 2.5%.

Those figures suggest inflation is largely coming under control, for now. Yet the Fed’s short-term interest rate remains at an elevated level intended to slow growth and inflation. Some economists argue that with inflation cooling, the Fed could resume its rate reductions.

When the Fed reduces its rate, it often — though not always — leads to lower costs for consumer and business borrowing, including for mortgages, auto loans, and credit cards. Yet financial markets also influence the level of longer-term rates and can keep them elevated even if the Fed reduces the shorter-term rate it controls.

But Fed officials have said they want to see whether Trump’s tariffs boost inflation and for how long. Economists generally believe a tariff hike should at least lead to a one-time increase in prices, as companies seek to offset the cost of higher duties. Many Fed officials, however, are worried that the tariffs could lead to more sustained inflation.

“While theory might suggest that (the Fed) should look through a one-time increase in prices, I would be uncomfortable staking the Fed’s reputation and credibility on theory,” Jeffrey Schmid, president of the Fed’s Kansas City branch and a voting member of the Fed’s interest-rate setting committee, said earlier this month.

The Trump White House has sharply ramped up pressure on Powell to reduce borrowing costs, with Trump himself calling the Fed chair a “numbskull” last week for not cutting. Other officials, including Vice President JD Vance and Commerce Secretary Howard Lutnick, are also calling for a rate reduction.

Pushing the Fed to cut rates simply to save the government on its interest payments typically raises alarms among economists, because it would threaten the Fed’s congressional mandate to focus on stable prices and maximum employment.

One of Trump’s complaints is that the Fed isn’t cutting rates even as other central banks around the world have reduced their borrowing costs, including in Europe, Canada, and the U.K. On Tuesday, the Bank of Japan kept its key short-term rate unchanged at 0.5%, after actually raising it recently.

But the European Central Bank, Bank of Canada, and Bank of England have reduced their rates this year in part because U.S. tariffs are weakening their economies. So far the U.S. economy is mostly solid, with the unemployment rate low.

The Bank of England has cut its rate twice this year but is expected to keep it unchanged at 4.25% when it meets Thursday.

Source: AP

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Adam

Commodity

Oil swung sharply between gains and losses on speculation the US may join the Middle East conflict, with traders focused on flows through the region’s vital shipping chokepoint.

Brent futures (BZ=F) traded above $76 a barrel, about $7 higher than they were before the attacks. Iran’s Supreme Leader Ayatollah Ali Khamenei said his country won’t surrender to Israel after US President Donald Trump called for the Islamic Republic’s capitulation as the conflict enters its fifth day.

Trump demanded Iran’s “UNCONDITIONAL SURRENDER” and warned of a possible strike against the country’s leader in social media posts on Tuesday. The US is also moving more military assets into the region, including the USS Nimitz aircraft carrier strike group, which is sailing to the Middle East ahead of schedule.

Oil Swings in Volatile Market as Trump Spurs War Escalation Fear_1

The oil market’s main concern is the threat to vessel traffic in the Strait of Hormuz, through which about a quarter of the world’s crude shipments flow, and to supplies from Iran itself. However, early data from TankerTrackers.com Inc. show that Iran has actually increased its exports significantly in the days since attacks began, and there’s been no major disruption to Hormuz.

The risks to prices have permeated across the oil derivatives market. Bullish options are fetching their biggest premiums in over a decade and volatility has surged to a three-year high. The cost of shipping crude from the Middle East to China is also up more than 50% since the attacks began.

The hostilities have also rattled wider markets, with investors seeking havens in assets like gold.

“Oil remains on edge and the worst case scenario is the closure of the Strait of Hormuz,” said Keshav Lohiya, founder of consultant Oilytics. “There is a huge fat tail risk in the oil and shipping world.”

Israel launched surprise airstrikes on Iran’s nuclear sites late last week, but American weapons are seen as crucial to achieving a more complete destruction of Tehran’s atomic program than anything it can do alone.

Oil could break above $80 a barrel on headlines of US involvement, said Chris Weston, the head of research at Pepperstone Group Ltd. The shape of the futures curve suggests that traders are pricing in a much tighter market, he added.

The gap between Brent’s two nearest December contracts — a key indicator on long-term balances — has significantly widened since the attacks and was almost $3 a barrel in a bullish backwardation structure. Prior to the conflict, it was in a bearish contango pattern, signaling expectations of ample supply.

Meanwhile, US industry figures showed the nation’s crude inventories fell by more than 10 million barrels last week. That would be the biggest decline since last summer if confirmed by official data later on Wednesday.

Source :Bloomberg

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Warren Takunda

Economic

The Australian Dollar faces renewed downside pressure as tariff risks tied to U.S. trade policy re-emerge, with key deadlines in July and August posing significant volatility threats, Commonwealth Bank of Australia (CBA) says in a new note.

CBA says, "U.S. tariff policy is far from settled" and highlights the July 9 deadline for a series of trade agreements. If progress stalls, CBA expects the U.S. to "lose patience and reinstate unilateral tariffs," either broadly or against specific countries, in a move that markets have not yet priced in.

"AUD/USD could slump by several cents over a few days around 9 July as it did in early April," FX researchers at the Australian lender say.

CBA also points to August 12 as the expiry date of a second pause on tariffs affecting Chinese imports, a critical factor given Australia's heavy trade reliance on China.

CBA cited a recent post from U.S. President Donald Trump indicating that China could apply a 10% tariff on U.S. goods, while the U.S. may counter with a punitive 55% rate.

"That high tariff rate remains a major weight on the global economy, and by extension is a downside risk to AUD/USD," CBA says.

The call comes amidst a spell of mixed AUD outperformance, with the currency holding an advance against the U.S. Dollar and half of its G10 currency peers over the past month.

Australian Dollar Faces Tariff Deadline Headache: CBA_1

Above: GBP/AUD at daily intervals. The annotations are part of our Week Ahead Forecast from Monday, showing an expectation for weakness, followed by a potential rebound. The setup remains promising.

However, if we recall early April price action, the currency is very sensitive to negative trade developments.

Analysts at Barclays say Australia's exposure to Chinese trade leaves AUD especially vulnerable, even as recent de-escalations between Washington and Beijing provide some relief.

Yet, with tariff rates still "almost six times higher than before Trump re-entered office," structural headwinds to global growth and commodity-linked currencies like the AUD persist, say researchers at Barclays.

CBA’s trade warning also comes at a critical time for monetary policy.

Morgan Stanley raises the July Reserve Bank of Australia (RBA) meeting as potentially consequential for AUD performance. With a 19bp rate cut priced in, a policy hold could provide a short-term boost to the currency.

However, the RBA’s path is increasingly influenced by global developments beyond its control.

While domestic data has been mixed, with Q1 GDP disappointing but household spending showing resilience, the AUD’s high-beta status leaves it exposed to global shocks.

Nomura's strategists highlight the AUD’s correlation to global equity markets, underscoring how quickly risk sentiment can shift on geopolitical developments.