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As investors turn their attention to Washington’s tariff negotiations next week, the expiration of a temporary suspension on punitive import levies looms large. With the July 9 deadline for reaching trade deals approaching, investors are keenly watching to see if trade tensions will escalate or ease. If the deadline passes without significant disruptions, market sentiment is likely to improve, possibly giving equities a boost.
Deadline for U.S. Trade Deals Nears
Over a dozen major U.S. trading partners, including Vietnam, India, and Japan, are in the final stages of negotiations with the Trump administration. The pressure is mounting as the deadline for trade deal completion fast approaches. On Wednesday, President Trump announced a deal with Vietnam, which he says will impose a more favorable 20% tariff on various Vietnamese exports, a reduction from previously expected rates.
Despite the progress with Vietnam, talks with India have yet to yield results, and discussions with Japan — the sixth-largest U.S. trading partner — have encountered difficulties. These developments have kept investors on edge, given the looming threat of higher tariffs. However, the positive market reaction following Vietnam’s deal suggests that a resolution of trade tensions could provide relief for global markets.
Investor Sentiment Shifts Amid Tariff Uncertainty
The U.S. stock market has rebounded from its recent lows, with the S&P 500 rising by about 26% since April 8, when the index hit a bottom after President Trump’s tariff announcement on April 2. This rally has been largely driven by retail investors and corporate buybacks, though institutional investors have remained cautious. Despite the S&P 500 reaching new highs, equity positioning remains far below the levels seen in February, as institutional investors maintain an underweight stance on stocks.
The shift in investor sentiment — from panic over tariffs to relief buying — is a positive sign for the markets. However, analysts remain cautious, noting that while the market has performed better than expected amid significant policy changes, concerns over U.S. economic growth and high stock valuations persist. Getting past the July 9 tariff deadline without further escalation would help alleviate one major risk factor, but it will not mark the end of trade tensions.
Economic Data and Market Sentiment
Despite worries about future economic growth, investors remain hopeful that economic data will provide clearer guidance. The S&P 500 is entering a historically strong period, as July has been the benchmark index’s best-performing month over the past 20 years, with an average return of 2.5%, according to data from LSEG and Reuters.
Beyond the tariff deadline, investors will focus on key economic reports, particularly inflation numbers, which are crucial for understanding the health of the U.S. economy. Additionally, second-quarter earnings reports will be closely watched for insights into corporate performance and potential impacts on the Federal Reserve’s interest rate decisions.
While there are many uncertainties weighing on investor sentiment, the possibility of avoiding further tariff escalation could provide much-needed relief for the markets. The S&P 500’s resilience, despite cautious institutional sentiment, reflects the ongoing balancing act between optimistic economic data and the ongoing risks surrounding global trade and policy changes. As the July 9 deadline approaches, investors will be hoping for more positive news on trade, which could fuel further gains in the near term.
