S&P 500 Rally Hits a Wall Near Its All-Time Highs: Markets Wrap

Federal Reserve Chair Jerome Powell reiterated to lawmakers that the central bank is in no rush to lower interest rates while waiting for more clarity on the economic impact of President Donald Trump's tariffs. "For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance," Powell said Tuesday in remarks before the House Financial Services Committee. Bloomberg

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(Bloomberg) — Wall Street’s torrid rebound from April’s meltdown is showing some signs of exhaustion on speculation stocks have run too far amid economic and geopolitical risks. Longer-term Treasuries underperformed. Oil bounced from the biggest two-day decline since 2022.

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The S&P 500 was little changed after a rally to a striking distance of its all-time high. The Nasdaq 100 outpaced other benchmarks, with Nvidia Corp. hitting a record. The yield gap between 30-year and five-year bonds approached levels last seen in 2021. The so-called curve steepening is a wager that the Federal Reserve will lower rates eventually while concern about more debt issuance will put pressure on longer-term maturities.

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Traders kept a close eye on Fed Chair Jerome Powell’s second day of testimony on Capitol Hill after Fed officials left rates steady last week. The Fed chief said the US central bank is still struggling to determine the impact of tariffs on consumer prices. He also noted that the US has the strongest economy in the world, and it makes sense to move slowly in times of uncertainty.

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“If it were not for the uncertainty created by shifting trade policy, the Fed may have been able to cut interest rates this summer,” said Carol Schleif at BMO Private Wealth. “The Fed’s pause on interest-rate cuts is tariff induced, and not necessarily reflective of economic progress. We expect one to two cuts in 2025, starting most likely in September.”

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Few times in history has the US market grappled with as many headwinds as it’s faced in 2025: a new president rejiggering the global order, sweeping tariffs and a bout of uncertainty stemming from Middle East headlines. While stocks have still prevailed against all odds, the higher the S&P 500 goes, the louder the concern that its multiples are starting to look frothy.

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“No market moves in a straight line,” said Matt Maley at Miller Tabak. “So, the thought that it might have to take a short-term breather is not something that will create any serious nervousness in the marketplace in and by itself.”

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On the geopolitical front, President Donald Trump said the US would hold a meeting with Iran next week but cast doubt on the need for a diplomatic agreement on the country’s nuclear program, citing the damage that American bombing had done to key sites. 

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His comments came on day two of a ceasefire between Israel and Iran, ending 12 days of conflict that threatened to escalate into a wider regional war and upend energy markets.

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“The markets are pricing in that the worst of the Iran/Israel conflict is behind us,” said Schleif. “Tariffs, trade, tax, inflation, employment and interest rates have a lot more sway on stocks right now.”

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Meantime, JPMorgan Chase & Co. strategists are doubling down on their view that the US stock market is on track for a fresh record this year as the economy and consumers remain resilient despite policy uncertainty.

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Absent any political or policy shocks, “we believe the path of least resistance to new highs will be supported by technology/artificial intelligence-led strong fundamentals, a steady bid from systematic strategies, and flows from active investors on dips,” strategists led by Dubravko Lakos-Bujas wrote.