Tariff Deadlines Loom, But a Strong Economy Keeps Markets Charging Ahead

July began on a high note as global markets carried forward the optimism built up over the month. The S&P 500 climbed roughly 5%, pushing to new record highs near 6,263 by July 9. The Nasdaq also broke fresh records, lifted by broad tech enthusiasm, while the Russell 2000 small-cap index gained more than 6%. Bitcoin joined in the rally, climbing above $112,000, reflecting strong risk appetite.

This performance was underpinned by robust economic signals. In the US, June’s non-farm payroll report showed 147,000 jobs added, exceeding expectations, which brought the unemployment rate down to 4.1%. Wage growth stayed modest, helping keep inflation fears contained. Earlier jitters from a rare contraction in private payrolls were offset by these stronger government figures. Meanwhile, the Federal Reserve’s June meeting minutes indicated officials still expect to cut rates later in the year, probably starting in September, though they remain cautious given the possibility that tariffs could keep inflation elevated. Markets are pricing in more than 60 basis points of cuts by year-end, supported by a weaker US dollar that lost about 7% through the second quarter.

Trade deals, tariff extensions, and geopolitical shifts

Trade developments dominated headlines throughout the month. The original July 9 expiry of the global 90-day tariff truce had loomed large, threatening the return of broad reciprocal tariffs. Just before the deadline, the White House extended it to August 1, relieving immediate pressure and buying more time for negotiations. The US sent notices to multiple countries outlining potential new tariff rates, warning  trade partners such as the EU, Canada, and Brazil could face steep new duties. 

China emerged as a relative bright spot. Authorities confirmed the framework of an interim trade deal with the US, covering rare earth exports and easing some tech-related restrictions. The Chinese government also unveiled measures to bolster consumption and encourage funding for consumer-sector companies. The Shanghai Composite rose nearly 2% over the month on these positive signals, along with reduced geopolitical tension after the US allowed China to continue purchasing oil from Iran.

In Japan, investors were encouraged by signs the White House might delay new auto tariffs. This pushed the Nikkei 225 past 40,000. Even with core inflation in Tokyo running above the Bank of Japan’s 2% target, the central bank signaled it would stay patient and data-driven given global uncertainties.

Europe steadies and geopolitical tensions ease

Europe’s economic picture was more balanced. Inflation in the eurozone ticked up to 2% in June, matching the European Central Bank’s target and labor markets stayed historically strong. ECB President Christine Lagarde cautioned that while they had met the target, more evidence would be needed to confirm inflation was under control, dampening hopes of quick rate cuts.

Geopolitical risk briefly spiked mid-month after the US launched precision strikes on Iranian nuclear sites, prompting Iran to fire missiles into Israel. This sent oil prices to a five-month high and boosted demand for the US dollar and Treasuries. The situation eased quickly after a ceasefire was reached, allowing oil prices and equities to stabilize.

Elsewhere, trade tensions resurfaced as President Trump abruptly cut off negotiations with Canada over Ottawa’s digital services tax on American tech firms. This caused a minor dip in the S&P 500 late in the period, though markets soon recovered. Looking ahead, investors will be watching a busy earnings season expected to show about 5.8% profit growth in the S&P 500 for the second quarter, supported by a softer dollar. As the calendar approaches the new August 1 tariff deadline, markets remain on alert for trade developments that could once again swing sentiment.

Portfolio performance and adjustments

The portfolio performed well during the period, posting strong returns of +3.21% (Cash), +1.91% (CPF-OA), and +3.28% (SRS). Notably, BlackRock World Financials delivered an impressive return of 22.65%, far outstripping the S&P 500’s decline of -1.73% over the first six months of 2025. Financial stocks have consistently outperformed under the Trump presidency, even surpassing other market favorites such as Technology, Japan, and EU equities. We will explore in greater detail why banking stocks are doing so well in next month’s newsletter.

On the other hand, US high yield short duration bonds remain weighed down in the short term by the 7% depreciation of the USD against the SGD since the onset of the trade war. However, I expect the fund to recover quickly, as its average annual yield of 7.61% should offset the currency losses. I also anticipate the USD will begin to rebound next year once more trade deals are finalized with major partners.

We will also be switching from Aberdeen All China Sustainable Equity to Allianz China A Shares AT Acc SGD, as Aberdeen will be delisting this fund. The new fund was selected for its more aggressive allocation toward financials and IT, sectors that typically perform well in a recovering economy. This stands in contrast to the previous fund’s focus on the more defensive consumer discretionary space.

On another note, technology stocks, which were hit hard during the initial tariff battles, are beginning to find their footing again and now offer attractive upside. I may look to rotate out of US small caps into technology at some point in the future.

You can download the latest fund fact sheet here