June's U.S. Market: A Fiery Surge, All Creatures Rise

Wall Street is hosting a summer carnival. The U.S. market has just wrapped up its best cross-asset rally in over a year, with the easing of tariff and geopolitical conflict concerns triggering a broad buying frenzy from tech funds to junk bonds.

On Friday, the S&P 500 index reached its first all-time high since February, as investor optimism triumphed amid high uncertainty regarding the economy, valuations, and government policies, seemingly returning to the state of "bad news is good news."

Despite rising unemployment claims, a persistently sluggish real estate market, weak global trade, and fading hopes for an imminent rate cut by the Federal Reserve, bulls are still clinging to signs of cooling inflation and improving consumer confidence. Bullish sentiment has not only remained intact but has surged to its highest level since Trump returned to the White House, driving simultaneous gains in the stock, bond, commodity, and credit markets, comparable to the largest monthly increase since May 2024.

Raphael Thuin, Head of Capital Markets Strategy at Tikehau Capital, stated:

"The market is showing signs of complacency. Whether it's trade negotiations, a general slowdown in the macroeconomy, geopolitical tensions, an expanding fiscal deficit, or rising interest rates, market participants seem to be pricing in optimistic outcomes."

Risk Frenzy Unaffected, Optimism Dominates the Market

The volatility that shocked the market a few weeks ago has completely dissipated, replaced by a fervent chase for risk assets. Retail investors are returning en masse, and systematic investors are also increasing their risk exposure.

The S&P 500 index soared 3.4% this week, reaching a new all-time high. The Mag7 stocks dominated the price movements this week.

Junk bonds have risen for the fifth consecutive week, with the yield on 10-year U.S. Treasuries falling by about 10 basis points.

The dollar has plunged for the third consecutive week over the past four weeks, closing at its lowest level since February 2022.

Gold has fallen for the second consecutive week.

As gold declines, palladium surges, marking its best week since October 2024.

With the easing of the Israel-Iran war, crude oil prices have plummeted - WTI fell nearly 13% this week - the worst week since March 2023, erasing all premiums.

Bitcoin has regained the $100,000 mark, recording its best week in nearly two months. Coinbase Global Inc. reached its first historical high since 2021.

Volatility control products have been increasing their exposure, with a metric from Nomura Securities International indicating that the largest buying wave since 2004 is expected. According to Barclays, quantitative funds tracking cross-asset trends have also increased their long exposure to stocks after briefly shorting for a few weeks.

Pessimistic Expectations Have Often Been Proven Wrong, But Risks Remain

Economic and market pessimists have been proven wrong for several months in a row. However, institutions like JP Morgan still assign a 40% risk of economic recession, citing that tariff policies and weak household spending prospects may conflict with declining business confidence.

Although Friday's report showed that U.S. consumer confidence in June reached a four-month high and inflation expectations improved, other data this week painted a less encouraging picture.

New home sales in May saw the largest decline in nearly three years. Unemployment claims have continuously climbed to the highest level since 2021, consistent with other data pointing to a slowdown in the labor market. Consumer spending in May experienced the largest drop of the year.

These reports provided context for Federal Reserve Chairman Jerome Powell's testimony in Congress this week, where he stated that interest rates might have already begun to decline if not for the uncertainty surrounding Trump's trade policies. He, along with a series of central bank officials, made it clear in their speeches that they need to wait a few more months to ensure that price increases driven by tariffs do not continue to push inflation higher

Potential Concerns Beneath the Frenzy

Julie Biel, portfolio manager and chief market strategist at Kayne Anderson Rudnick, stated that this is an unstable positioning for investors who have just experienced one of the most volatile quarters on record:

"People forget that FOMO (fear of missing out) is not unrestrained optimism, but driven by fear. Therefore, if our margins or earnings deteriorate, or if employment data really worsens, then there are not many factors supporting the market. Earlier this year, we learned why a narrow market is not a strong market."

Signs of skepticism are emerging beneath the surface optimism: speculative bets that have led the recent market rally—ranging from tech disruptors and small-cap stocks to gold miners and uranium stocks—are flashing cautious signals. According to Barclays, the options market is pricing in significant downside risks for funds such as the ARK Innovation ETF, iShares Russell 2000 ETF, and VanEck Gold Miners ETF.

Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, has not chased this rally, citing overvaluation in the S&P 500. He prefers cheaper small-cap and mid-cap stocks as well as international stocks:

"People have gotten used to buying the dips, and this will continue until that strategy fails."