To The Moon

On Friday, 27 June 2025, $S&P 500(.SPX)$ reach a new record high. This was largely driven by optimism surrounding a newly finalized trade agreement framework between the U.S. and China. This agreement, which includes a commitment from China to expedite rare earth mineral exports and a lifting of certain U.S. restrictive measures, has eased concerns over the protracted trade dispute between the two economic giants.

We can see that the strong momentum continue to build for S&P 500, despite the volatility seen, but we do need to take note that next week would be a short trading week.

However, the market also experienced some volatility on the same day due to President Trump's announcement of terminating all trade talks with Canada. This introduces a new layer of uncertainty to the global trade landscape.

Can this optimism continue despite market faced volatility due to trade tensions with Canada?

I would personally say that this would be a mixed bag, and the continuation of optimism will depend on several factors:

Impact of US-China Agreement vs. Canada Tensions

The agreement with China is significant given the scale of trade between the two nations. The market's initial reaction suggests that the positive sentiment from this agreement is currently outweighing the negative impact of the breakdown in talks with Canada. However, if the Canadian situation escalates into a full-blown trade war with significant tariffs, it could certainly dampen the overall optimism.

Specifics of the Canada Tensions

The extent of the impact from the Canadian trade tensions will depend on the specific measures taken by both sides. If it leads to broad tariffs on key industries, it could affect corporate earnings and consumer prices, potentially impacting the S&P 500. However, if it remains a more contained dispute or is resolved quickly, the market may continue to brush it off.

Resilience of the U.S. Economy and Corporate Earnings

Despite the trade uncertainties, the U.S. economy has shown resilience. Strong consumer sentiment and expectations for solid corporate earnings in the upcoming quarter could help absorb some of the shocks from trade tensions.

The resilience of the U.S. economy and corporate earnings can certainly provide strength to power the S&P 500 to better optimism and potentially another record high, even with trade tensions with Canada.

We might want to look at some of the factors breakdown that are helping.

Stronger Economic Fundamentals (Despite Headwinds)

Consumer Spending: While Q1 2025 consumer spending showed a slowdown, it has generally been a robust driver of the U.S. economy. As long as consumers continue to spend, it provides a crucial foundation for corporate revenues.

Labor Market: A relatively strong labor market, even with some fluctuations in jobless claims, supports consumer spending and overall economic health.

GDP Growth: Although Q1 GDP growth was revised down, the market is currently focusing on signs of resilience and the potential for a rebound in subsequent quarters.

Inflation Expectations: There is growing optimism that inflation is cooling, which could lead the Federal Reserve to cut interest rates. Lower interest rates generally make borrowing cheaper for businesses and consumers, stimulating economic activity and making stocks more attractive relative to bonds.

Positive Corporate Earnings Outlook (with caveats)

Q1 2025 Performance: S&P 500 earnings per share (EPS) saw a solid increase in Q1 2025, with many companies beating estimates. This provides a strong base.

$Nike(NKE)$ announced plans to reduce its reliance on Chinese production to counteract the impact of U.S. tariffs, which could increase costs by $1 billion. The company plans to shift production to other countries and implement supply chain optimizations. Despite a forecasted revenue drop, Nike's shares rose 11% in extended trading, reflecting investor confidence in its mitigation strategies.

"Magnificent Seven" Strength: Technology giants (the "Magnificent Seven") continue to be a significant driver of overall S&P 500 earnings growth, with strong capital expenditures that benefit other parts of the economy.

Overall, there are 12,319 ratings on stocks in the S&P 500. Of these ratings, 56.4% are Buy ratings, 38.7% are Hold ratings, and 4.9% are Sell ratings. The percentage of Buy ratings is above its 5-year (month-end) average of 55.1%. The percentage Hold ratings is below its 5-year (month-end) average of 39.0%. The percentage of Sell ratings is also below its 5-year (month-end) average of 5.9%.

At the sector level, analysts are most optimistic on the Energy (68%), Communication Services (64%), and Information Technology (64%) sectors, as these three sectors have the highest percentages of Buy ratings.

On the other hand, analysts are most pessimistic on the Consumer Staples (40%) sector, as this sector has the lowest percentage of Buy ratings. The Consumer Staples (53%) sector also has the highest percentage of Hold ratings, while the Consumer Staples (7%) and Utilities (7%) sectors have the highest percentages of Sell ratings.

The ten S&P 500 companies with the highest percentages of Buy ratings and Sell ratings (with a minimum of 3 ratings) can be found on page 4. Two of the top ten companies with the highest percentage of Buy ratings are also “Magnificent 7” companies: $Amazon.com(AMZN)$ and $Microsoft(MSFT)$.

Analyst Expectations for Q2 2025: While some analysts have lowered Q2 earnings estimates, the expected growth rate for S&P 500 earnings in Q2 2025 is still positive (around 5%). Companies are also issuing a good number of positive EPS guidances, particularly in the Information Technology sector.

Resilience to Tariffs (So Far): Many large-cap companies within the S&P 500 have demonstrated an ability to weather tariff uncertainties reasonably well. The upcoming Q2 earnings season will provide a clearer picture of how companies have navigated the "extreme headline risk" of recent months.

Investor Sentiment and Momentum

"Risk-on" Environment: Easing geopolitical tensions (like the Israel-Iran ceasefire) and the U.S.-China trade agreement create a more "risk-on" sentiment among investors, making them more willing to invest in equities.

Fed Rate Cut Hopes: The market is increasingly anticipating Federal Reserve rate cuts later in 2025, which is a powerful catalyst for stock market optimism.

Broad Market Gains: Recent S&P 500 gains have been broad-based, with many sectors participating, indicating a more generalized positive sentiment rather than being confined to a few outperformers.

Federal Reserve Policy: Hopes for potential Federal Reserve rate cuts later in the year are also a significant driver of market optimism. If inflation remains subdued and the Fed signals a willingness to cut rates, it could provide further support to the stock market, even amidst trade frictions.

Trade Deal Fragility: While a U.S.-China trade agreement framework has been signed, the details are still emerging and its full implementation and long-term stability are yet to be seen. Any misstep or re-escalation in trade tensions with China could quickly reverse the current optimism.

Other Geopolitical Factors: The market has also been influenced by other geopolitical events, such as tensions in the Middle East, which had eased recently. Any resurgence of such issues could add to volatility.

Challenges and Risks to Consider

While we might be seeing more factors supporting the optimism and record high possibilities, we also cannot ignore the challenges and risks that could prevent or derail this sentiment, so as a smart investor, we need to always consider both side of the coin.

Canadian Trade Tensions: While the market has largely shrugged off the initial announcement, an escalation of trade tensions with Canada into broad, impactful tariffs could still introduce significant headwinds.

Inflationary Pressures: While the Fed is looking at rate cuts, there's always a risk that tariffs or other factors could reignite inflation, forcing the Fed to maintain or even raise rates, which would be a negative for stocks.

Slowing Economic Growth: Even with resilience, if the U.S. economy experiences a more significant slowdown than anticipated, it would inevitably impact corporate earnings and investor confidence.

Valuations: The forward 12-month P/E ratio for the S&P 500 is currently above its 5-year and 10-year averages, suggesting that valuations are somewhat elevated. This means less room for error and greater sensitivity to negative news.

"Trump Tariff" Uncertainty: While the China deal is a positive, the administration's "on-again, off-again" tariff policy creates ongoing uncertainty for businesses trying to make financial forecasts. The July deadline for retaliatory tariffs remains a key point to watch.

Why I Believe Amazon Can Continue To Do Well. Plan To Do Option Sell Puts

I am holding Amazon for long term and with the strong sentiment and also momentum we seen from Amazon, I think we could be seeing a strong performance. Hence my next week play would be to go for option Sell Puts for Amazon.

Amazon was up 2.85% but if we look at Amazon’s price action all day Friday, all day gap up, there is open consolidation. We can see that in the last 10 minutes of Friday’s session, there is index rebalancing and institutions buying.

This mean that people are very bullish on Amazon and Amazon have been left behind by most investors, and we can see that the valuation is not too high, even at 220 in terms of their forward growth prospects.

For me I look at the EPS expansion and revenue ramp up by Amazon by 2029, it is going to do about a trillion dollars in sales. With this, I would say they are scaling revenue and becoming more profitable while they maintain a better net margins and free cash flow.

The bulls are clearly in full control and just by looking at that expansion cycle, we can see that the weekly higher low is set at 207. If it closes like this on the Monday session, then we could be looking at some continuation into the all-time highs over the month of July and maybe early August into high range of 240.

I think Amazon current share price is too high to buy into, even for a swing trade, hence, I am planning to do option sell puts.

Summary

While the recent U.S.-China trade agreement has provided a strong boost to market sentiment, the renewed trade tensions with Canada introduce a new source of volatility. The market's ability to maintain its optimistic trajectory will depend on the severity and duration of the Canadian dispute, the continued positive developments in the U.S.-China relationship, and the underlying strength of the U.S. economy and corporate earnings.

The underlying strength of the U.S. economy, particularly consumer spending and a resilient labor market, combined with generally positive (though decelerating) corporate earnings, does indeed provide a solid foundation for the S&P 500. The recent U.S.-China trade deal and the anticipation of Fed rate cuts are significant tailwinds. While the Canadian trade tensions introduce some uncertainty, if they remain contained or are resolved, the market's optimism, supported by these economic and earnings fundamentals, could very well propel the S&P 500 to further record highs.

I think we as Investors would need to closely watch for further details on both fronts and how they impact the broader economic outlook, at the same time, remain vigilant regarding potential escalations in trade disputes and any signs of a more significant economic slowdown or renewed inflationary pressures.

Appreciate if you could share your thoughts in the comment section whether you think S&P 500 can continue the optimism from last week and hit another new record high in a short trading week.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.