The S&P 500 rose for a ninth straight session on Friday. This marked its longest winning streak since 2004. The index erased all of its losses since President Trump announced tariffs on April 2.
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Stocks rallied on signs of easing U.S.-China trade tensions. There was also evidence that corporate earnings and the labor market are resilient despite market volatility.
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Morgan Stanley analysts say a signed trade deal with China and a dovish tilt from the Federal Reserve are likely needed for further stock gains.
Risks to the rally include the possibility that tariffs weigh on the labor market. Elevated Treasury yields could also be a headwind. Uncertainty on Wall Street is at its highest level in years.
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But you wouldn’t have known it watching stocks last week. The S&P 500 completely rebounded from April’s rout. This was despite a murky outlook on tariffs.
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Most of Trump’s “reciprocal” tariffs are paused until early July.
S&P 500 rally endures uncertainty
But duties on Chinese goods remain a key point of negotiation for the White House.
Nearly all U.S. imports are now subject to a 10% global tariff that took effect on April 9. The recent rally has been driven by optimism about a de-escalation with China. An improving earnings outlook has also helped.
S&P 500 profits grew by more than 10% last quarter. Morgan Stanley believes the U.S. and China will need to reach a trade deal to maintain the rally. Fed officials will also need to signal they’re willing to support growth.
But Morgan Stanley’s economists don’t see the Fed cutting rates this year. The Fed’s stance on tariffs’ impact on the economy will be closely watched. Tariffs could cause labor market conditions to worsen, especially for small businesses.
Elevated interest rates also pose a threat to the rally. The path for stocks to keep rising is fraught with uncertainty. Trade deals, Fed policy, and interest rates will all play pivotal roles.
Investors should keep an eye on these key factors as they navigate an increasingly complex landscape.
