Stocks climb the wall of worry while the Dollar slips on tariff banana peels

Wall Street ended Thursday on a high note, but the path to the close was anything but smooth. The S&P 500 tacked on 0.4% as Oracle’s AI optimism lit a spark under risk appetite, helping stocks shrug off Trump’s tariff threats, Powell-bashing, and fresh tremors from the Middle East. The Dow and Nasdaq followed with modest gains, but under the hood, it was a messy tape—equal parts hope, hedging, and headline fatigue.

While equities rallied into the close, the dollar continued to wear the scarlet letter of “Sell America.” It sold off another 0.7%, breaking below levels seen during April’s tariff tantrum and plumbing lows not visited since March 2022. As the 90-day pause on Trump’s so-called “reciprocal tariffs” ticks toward expiry, traders are treating the greenback like a proxy for proximity to the cliff’s edge: the closer we get, the more nervous the footing.

Treasuries, meanwhile, were back in beast mode. A $22 billion 30-year auction went off without a hitch, helping pull 10-year yields below 4.4%. Add in softer jobless claims and a cooling PPI print, and you’ve got a cocktail that screams “Fed blink incoming.” The market’s starting to price in rate cuts with a growing sense of conviction—if not now, then soon.

Trump did his best to keep the White House three-ring circus spinning. In ring one, he reassured markets he won’t fire Powell—then promptly called him a “numbskull” for not slashing rates by 200bps. That $600 billion in annual savings claim? Pure voodoo math.

Ring two saw Commerce Secretary Lutnick touting progress on trade, name-dropping Japan, South Korea, and even the EU. But his admission that negotiations with Brussels are “more than thorny” was pure trader-speak for “we’re nowhere close.”

In ring three, Treasury Secretary Scott Bessent hinted at flexibility on the looming tariff deadline, adding just enough ambiguity to keep hope alive while buying more time.

Still, the market has seen this show before. Bark, delay, then deal. Stocks are playing along, dipping then ripping on cue. But the dollar isn’t buying it—it’s hedging the White House chaos. With volatility brewing and July’s tariff clock ticking down, FX traders aren’t trading the bark; they’re bracing for what comes after the clowns exit the stage.

And while markets stayed glued to the tickers, the geopolitical fog thickened. The Pentagon launched a review of the AUKUS submarine pact with the UK and Australia—another chess piece in the Taiwan Strait standoff. It's a subtle but unmistakable message: if you want U.S. military hardware, be prepared to stand shoulder to shoulder if things go sideways. It’s also a marginal negative for the dollar.

Crude oil eased slightly, but don’t let that lull you—war risk remains the most underpriced asset in the entire market. Brent could easily push through $90 if the Middle East tinderbox lights up, especially with the Strait of Hormuz in the blast radius. Israel’s threats to Iran’s nuclear infrastructure are back on the radar, and traders are waking up to just how thin the geopolitical ice really is. Inflation may be cooling, but a two-front oil shock—Ukraine and Iran—could quickly turn that trend on its head.

Under the surface, FX options are flashing amber. One-week and one-month risk reversals hint at choppiness ahead—not full-blown panic like April, but definitely not smooth sailing. The dollar has dropped by over 8% year-to-date, and portfolio flows continue to shift offshore quietly.

Meanwhile, the S&P flirts with all-time highs like nothing’s wrong, but you can feel it—this rally is walking a tightrope. Without a Fed cut or an earnings upside surprise, the bar is high, and the margin for error is razor-thin.

Finally, a sombre headline to start the day: a 787 8 jet crashed in Ahmedabad, India, killing all but one of the 242 on board. Boeing shares tumbled 4.8%, with GE Aerospace—maker of the jet’s engines—off 2.3%. It's another body blow to Boeing, which has struggled to regain market trust after a string of safety and production setbacks.

The market’s dancing in the storm—stocks grinding higher, bonds flashing rate-cut bait, and the dollar limping on tariff fatigue. But beneath the surface, geopolitical risk is simmering, the trade clock is ticking, and this entire rally rests on a hope-and-liquidity foundation. Stay nimble. Trade the tape, not the talk.