Red flags arise as the S&P 500 prices out looming risks [Video]

US equities ended Q2 at all-time highs. While headlines point to optimism around trade negotiations and potential Federal Reserve (Fed) rate cuts, much of the recent rally appears to be driven by continued enthusiasm around AI.

On the trade front, discussions with Japan remain tense, and talks with the EU may result in a universal 10% tariff without key sectors—like autos and luxury—receive exemptions. On the Fed front, Chair Jerome Powell has cautioned against rushing to cut rates, especially as the impact of new tariffs on inflation and growth remains unclear. Last week’s hotter-than-expected core PCE data reinforces that message, suggesting inflation may be turning back up. Earnings expectations have also been revised down, yet markets seem to be pricing in a best-case scenario. Eyes are on US jobs data. Any weakness could further revive the Fed doves and support the rally, but the red flags are rising.