S&P 500 Record and Market Volatility in June

Despite the apparent stability of global markets in June, behind-the-scenes activity and new trade agreements between the United States and China stirred the landscape. In this edition, Marcio Brito, Head Investor at Banco Itaú International, analyzes the factors that pushed the S&P 500 to a new record and the risks that still loom over the market.

Main highlights:

• New US-China agreement brings relief to markets: the trade understanding reached between the world’s two largest economies is not final, but it was enough to ease tensions and boost markets—especially in the technology and industrial sectors, which are more sensitive to this type of negotiation.
• Fixed income declines after weak US economic data: the latest Federal Reserve meeting reflected a scenario of economic slowdown. With both the industrial and retail sectors underperforming, US Treasury yields fell, signaling investor caution amid the possibility of interest rate cuts.
• Division within the Fed over monetary policy: while some Fed officials advocate for early rate cuts to prevent a sharper slowdown, others prefer to wait, citing the resilience of the labor market. July’s data will be crucial in determining the next steps.
• Risk appetite remains strong, driven by AI: enthusiasm around artificial intelligence continues to support corporate earnings in the US. Companies in automation, cloud computing, and semiconductors maintain strong performance, even amid signs of slight weakening in the labor market.
• Isolated volatility highlights geopolitical risks: despite the optimism, there were spikes in volatility triggered by tensions in the Middle East and political instability in Europe. These episodes underscore the need for heightened vigilance in the face of potential negative surprises.
• U.S. monetary policy: inflation and employment data in the coming weeks will be crucial for the Fed’s next moves; if inflation remains under control and the labor market weakens, the chances of a rate cut in September increase.
• Corporate earnings season: the earnings season begins with high expectations for the technology sector. In this context, any disappointment could trigger corrections in stock prices.
• European outlook: Europe’s economy continues to show weak growth, while political uncertainties are rising, potentially adding further instability to global markets in July.