​EBC Markets Briefing | Bar set high for Wall St to scale new heights

​US stocks have bounced sharply off their spring lows following "reciprocal tariff" announcements, and some strategists say the worst may be over, setting the stage for a relatively calm summer session.

"I do think the second quarter is going to surprise on the upside yet again," Andrew Slimmon at Morgan Stanley said on Thursday, citing strong earnings expectations and a stable economy.

He also cautioned that the current setup is not as favourable as it was in early April when even modest positive news sparked strong rebounds. The S&P 500 has increased by around 2% so far in 2025.

Some beaten-down sectors were behind the rally, including communication services, technology and consumer discretionary. But political events abound in the coming months, from trade talks to Trump's "big, beautiful bill."

The first test of the market's resolve will be the Fed's meeting due next week. Two days later comes "triple witching" and the end of the month brings quarterly portfolio rebalancing.

CTAs, which typically buy stocks as index prices rise and sell when they decline, turned net long on equities in late May for the first time since early March after the S&P 500 broke above 5,800, according to UBS.

But the index needs to top 6,000 to daw more interests, according to the bank, adding that if the market rally unwinds soon, those trend followers will be forced to turn net short on stocks and in turn push shares lower.

Buy in June?

The adage "sell in May and go away" alludes to a six-month stretch ending in October that historically has been the worst time for stocks. The thing is we just saw the biggest S&P 500 gain since 1990.

It has suffered losses in June just once in the past decade, data compiled by Bloomberg show. The last month's unusual strength raises the question whether the momentum will carry into H2.

Fund managers reduced cash holdings and piled into US stocks at a furious pace in May. That means capitals to be allocated into the market could be limited, complicating its near-term prospect.

A growing crowd of Wall Street strategists argues that the benchmark index has more room to run higher. Deutsche Bank chief global strategist Bankim Chadha boosted his year-end target to 6,550 from 6,150.

Barclays has raised its year-end price target for benchmark index to 6,050 from 5,900, citing easing trade uncertainty and expectations of normalized earnings growth in 2026.

Tariffs next year are expected to have no additional direct impact compared to this year, though secondary effects on growth and inflation may extend into 2026, it noted.

RBC Capital revealed in a note to clients on Monday that it has revised its year-end target to 5,730, up from 5,550, but warned that the index is still likely to decline from current levels.

All eyes on trade

India has taken a tougher line in negotiations and challenged US car tariffs at the WTO. But Trump and his team are more eager to draw attention to inroads with China as proof his tactic has worked out.

Trade negotiators from the US and China have met in London. At the top of the agenda appears to be a relaxation of China's rare earths export curbs – Beijing's major bargaining chip.

Trump said in a late-night social media post last week that Xi was very tough to make a deal with. China bristled at his recent decision to restrict sales of chip-design software.

He also raised steel and aluminium tariffs to 50% from 25%, following through on a pledge to support domestic manufacturers though a federal court challenged all tariffs put in place under the emergency law.

Customs data showed that China's exports to the US plunged 34.5% year-on-year in May in value terms, the sharpest drop since February 2020, while total export growth slowed to 4.8%.

Commerce Secretary Howard Lutnick suggested the US could hardly agree with Vietnam to drop all tariffs, because it believes the nation is a hub for so-called transshipment of Chinese goods.

The clock is ticking for Trump as 90-day pause on higher tariffs for China extends until August. If the talks go well, there's a chance the S&P 500 could reach a new peak, noted the JPMorgan trading desk.

EBC Forex Market Analysis Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Industry In-depth Analysis or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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