Cracks beneath the record highs

The S&P 500 closed at a fresh record high yesterday, boosted by a 4% jump in Nike shares — now up 45% since April’s dip on the back of the US–Vietnam trade deal. At first glance, the market reaction might suggest the deal was great news. But was it?

Under the agreement, Vietnamese exports to the US will face a 20% tariff, while goods transiting through Vietnam — such as Chinese products — will be taxed at 40%. In other words, goods made in Vietnam will now cost 20% more than they did before, which is 10 percentage points above the 10% universal tariff rate. While that’s still lower than the 40+% initially floated on Liberation Day, the new tariff structure still marks a significant cost increase, though lifting sentiment at names like Nike, Lululemon and Under Armour. In exchange, US goods will enter Vietnam without tariffs. A power play, clearly.

More trade optimism came for the semiconductor sector, as the US reportedly lifted export license requirements for chip design software sales to China. This allowed Siemens to restore full access to its tools for Chinese clients. The move follows last week’s US–China trade truce, which resumed rare earth exports from China to the US. Other firms previously affected by restrictions, such as Synopsys and Cadence Design Systems, could also benefit from renewed investor interest. Semiconductor names with China exposure — Nvidia in particular — may see further upside.

Jobs lost

The US ADP employment report printed a negative figure yesterday, signaling that the US economy lost jobs in June. Markets initially reacted with a selloff — until the trade news turned sentiment around. Notably, the weak data lifted the odds of a July Federal Reserve (Fed) rate cut from around 21% to over 27%, but the 2-year US yield, which closely tracks Fed expectations, didn’t drop. It rebounded past 3.80% and is now consolidating just below that level.

Today, the US will release official jobs data a day earlier than usual due to the July 4th holiday. According to a Bloomberg survey, analysts expect 111,000 new nonfarm payrolls, a slight slowdown in average earnings growth on a monthly basis and an uptick in the unemployment rate from 4.2% to 4.3%

If the NFP report comes in softer than expected, it could further embolden Fed doves and help keep the S&P 500 near — or above — record levels. But stronger numbers could muddle the picture, as has often been the case this year, and support the Fed’s stance that the labour market remains resilient.

Still, inflation will be the ultimate arbiter of whether the Fed cuts rates later this year. If tariffs drive up prices — and they likely will — the Fed may have to ignore weakening jobs data for a while. It will only act decisively when labour and growth indicators flash red. Until then, equity markets could face a correction before any meaningful dovish shift materializes.

Mind the rise 

Meanwhile, long-term bond yields across Western markets are flashing early signs of stress. The latest catalyst was a moment of uncertainty in the UK, where Keir Starmer hesitated to confirm whether Chancellor Rachel Reeves would remain in her post — while Reeves was seen wiping away tears behind him in Parliament (it’s reportedly for personal reasons). But the imagery alone raised alarms about the UK’s narrowing fiscal headroom, the need to raise taxes and cut spending, and the credibility of the gilt market. As a result, the 10-year gilt yield surged 25 basis points, pushing the US 10-year yield to 4.30%. Japanese long-term yields also reversed recent declines.

In summary, trade deals are back, but they come with tariffs that could reignite inflation. Economic data is weakening, but not enough to force the Fed’s hand. And long-term yields are creeping higher, flashing early signs of market stress.

Stocks may be hitting new highs, but under the surface, the pressure is building. This isn’t smooth sailing — it’s a rally flying straight into headwinds.