Following April’s sell-off triggered by former President Trump’s tariff announcement, U.S. stocks have staged a sustained rally, pushing valuations toward historic highs. While this suggests investors remain unfazed by tariff policies, government debt concerns, and threats to Federal Reserve independence, warning signs of market frothiness are multiplying. Meanwhile, earnings reports from tech giants like Apple and Microsoft could introduce fresh volatility given their market weight.
Indices Hit Record Highs
Buoyed by optimistic earnings and trade deals with Japan and the EU, U.S. stocks resumed their climb. On Monday, the S&P 500 edged up 0.02% to 6,389.77—its sixth consecutive record close—while the Nasdaq notched its 14th all-time high this month, marking its most record-breaking month since December 1999.
- Valuation Alarms: S&P 500 stocks now trade at over 3.3 times revenue—an all-time high (Bloomberg).
- Buffett’s Gauge: The market cap-to-GDP ratio signals U.S. stocks are at their priciest ever (FT’s John Plender).
- Morgan Stanley Bullish: Projects S&P 500 could surge 12% to 7,200 in 12 months on improved earnings.
Tech Leads Charge:
Nvidia and Meta have soared 100% and 50% since April lows. Smaller players like Palantir (+140%) and Coinbase (+180%) outperformed.
Sector-Wide Gains:
Healthcare (+3.4%) led the rally, followed by materials, industrials, real estate, and communications services (all >2%). Financials, energy, and consumer discretionary rose >1%.
Uncertainty Fades
Trade deals with the EU and Japan have cooled fears. Sino-International Payment Research Institute analyst Wu Zewei notes:
“Agreements exceeded expectations. The core concern wasn’t tariffs but uncertainty.”
- VIX Plunges: The “fear gauge” has tumbled 66.83% since April 8, back to pre-administration levels.
- TACO Trade Pays Off: Bets against tariff chaos delivered hefty returns, fueling bullish sentiment.
Expert Views:
- Bill Sterling (GW&K): “Deadlines are no longer threats. Markets are relieved by the lack of retaliation.”
- Robert Kavcic (BMO): “Investors see 10-15% tariffs as absorbable via profit compression and modest consumer pass-through.”
Caution Remains:
Morgan Stanley’s Daniel Skelly warns: “Complacency is rising as volatility hits February lows. Tariffs’ full impact remains unknown.”
Earnings Test Ahead
The rally faces a critical test as “Magnificent Seven” members—Meta, Microsoft, Amazon, and Apple—report earnings this week. Nvidia ($4.31T market cap) and Google already beat estimates; Tesla lagged.
- Earnings Spotlight: FactSet data shows >85% of early S&P reporters beat forecasts.
- “Magnificent Seven” Q2 profit growth: +14% vs. +3.4% for the rest of the S&P 500.
Other Catalysts:
- Fed Meeting (July 30-31): Rates expected unchanged. CME’s FedWatch shows 60.4% odds of a September cut.
— Trump pressures Fed: “Powell may cut soon.” - Economic Data: June PCE and jobs reports will reveal tariffs’ impact on inflation and labor.
Bubble Warnings
- Bank of America: Strategist Michael Hartnett flags rising froth risks as global policy rates fall (4.8% → 4.4%), with further cuts likely. Retail investor influx could amplify volatility and bubbles.
- SocGen’s Albert Edwards: “Stocks are in a bubble.” Notes disconnect between surging equities and rising Treasury yields—a pattern seen before the 2000 dot-com crash.
- Meme Stock Mania: Shares of MediPharm Labs surged 260% in 5 days on no news. July 24 volume hit 3B shares (15% of U.S. trading), with turnover 7x its market cap.
PIMCO’s Dan Ivascyn sounds the alarm:
“This echoes the late-1990s internet boom. A speculative frenzy is building—a dangerous setup.”