Treading water?
The S&P 500 ended Tuesday treading water, stuck in that familiar zone between headline whiplash and earnings anticipation. With traders glued to their terminals and ears cocked to the next tariff whisper, the tape showed signs of fatigue—unsurprising given the conflicting signals from Washington. Once again, markets found themselves caught between Trump’s megaphone diplomacy and the more methodical cadence of earnings season, which may ultimately pose the greater test to equity valuations in the near term.
After a blistering rally off the April lows, the index ran out of breath just below record highs—stalling not because of any single catalyst, but due to an overhang of narrative risk. Monday’s tariff blitz—25% duties slapped on South Korea and Japan and at least a dozen others—triggered a 400-point swoon in the Dow.
And while Trump dangled the prospect of relief by nudging the implementation date to August 1, he muddied the waters just as quickly, calling the deadline “not 100% firm”—which, in trader speak, translates to “nothing is priced in.” The gesture of delay was meant to soothe, but the ambiguity did the opposite. Instead of providing clarity, it injected another dose of policy fog into a tape already thick with mixed signals. Markets can work with deadlines; it’s the moving goalposts that keep desks on edge.
Then came Tuesday’s curveball: a 50% tariff on copper imports, lobbed without preamble. Copper surged on cue, sniffing out the supply disruption. But equities remained stuck in neutral. It’s the kind of tape where chasing breakouts feels reckless, yet shorting strength hasn’t paid off either.
This is the market equivalent of driving with one foot on the gas and one on the brake— negative headline risk can impact sentiment one minute, while hopes of negotiation breakthroughs ease it the next. The President’s Truth Social posts are now a de facto “risk on – risk off” barometer for global markets, each one examined like scripture, influencing metals, bond yields, and risk premiums in their wake.
The broader takeaway on desks: tariffs are no longer a tail risk—they’re a funding mechanism for US tax cuts. The “reciprocal duty” narrative has matured from bluster to baseline. What’s in play now is the delta: anything below the feared 25%—say, a 10% hit to EU or Japan—would perversely be seen as market-friendly. Expectations are firming around a 15% effective rate, with deviations on either side driving short-term sentiment.
In rates, the vigilante tremors are real. Treasuries sold off again, extending a global bond rout sparked by Japanese and German long-end weakness. U.S. 30-year yields flirted with 5%, and the front end buckled under the weight of soft demand at a $58 billion 3-year auction. The dollar wobbled but remained sticky. The yield curve isn’t steepening so much as it’s creaking under the pressure of sovereign re-pricing.
Meanwhile, earnings season is limbering up in the background, with margin compression set to take center stage. With tariffs now embedded in corporate cost structures, investors will be watching closely to see who passes the buck and who eats it. That game of margin hide-and-seek will tell us far more about equity durability than any tweet or tariff timetable.
This is where macro meets micro. And in this market, where sentiment turns on a dime and narratives melt like popsicles in the summer heat, traders are left doing what they always do in uncertain conditions—staying light, staying alert, and scanning both rearview mirror and windshield at the same time.
The view: The calm that lies
Markets are drifting through the doldrums this week, with no strong wind in sight to fill the sails. Catalyst scarcity has become the defining feature of the tape, and traders are squinting through the haze, trying to find signal in a sea of static. The NFIB small business sentiment came in as expected—neither hot enough to stoke conviction nor cold enough to spark fear. Just noise, really.
But while equities tread water, the bond market has sprung a slow leak. Yields on 10-year Treasuries have climbed 10 basis points since Monday, not on domestic data, but due to tremors in Japanese government bonds that have rippled through global sovereign markets like a stone dropped in a still pond. The long end is taking the worst of it, with 30-year yields brushing up against that dreaded 5% handle again—the line in the sand where equity bulls tend to lose their nerve.
It’s not just fundamentals, it’s positioning. CTA flows and technical demand that once offered ballast have evaporated. With supply-heavy auction calendars this week and little conviction under the hood, the tape is becoming increasingly slippery.
Equities tried to muddle through it. At first glance, the major indices appeared unbothered—S&P and Nasdaq flat, nothing to see. But look under the hood, and it’s a different beast entirely. Small caps caught a face-melting short squeeze, reversing Monday’s losses in spectacular fashion. At the same time, momentum darlings—those “can’t lose” names—got torched in a violent rotation. Think of it as a sector-wide game of hot potato: unloved junk names caught a bid while the high-fliers leaked air.
Factor flows were disjointed and twitchy. Hedge fund proxies slid back toward year-to-date lows. High-beta tech laggards, non-profitable names, and the most shorted tickers were suddenly the belle of the ball. Meanwhile, the “quality” cohort—those big, safe, liquidity sinks like AMZN, NFLX, and UBER—quietly bled lower.
There’s no great macro trigger here. Just a subtle recalibration of stretched long books ahead of earnings, compounded by a sharp backup in rates. When the 10-year jumps 18 bps in five sessions, you can bet on some reshuffling, especially when 30s threaten to break out again. Risk sentiment hasn’t cracked—but it’s starting to wobble.
And just as things were beginning to stabilize, Trump dropped his tariff hammer on copper—50%, out of the blue—sending the red metal screaming to new highs. Gold, meanwhile, got slammed to $3,300 before finding its footing, while the dollar jerked higher before fizzling in the afternoon session. Volatility is no longer contained—it’s migrating across asset classes like a brushfire.
Oil quietly kept climbing, erasing the post-peace-drop from Israel-Iran headlines. Bitcoin bounced off support near 107k, staging yet another mechanical rally that feels more like muscle memory than momentum.
Against this chaotic backdrop, Goldman Sachs finally caught up with the tape, upgrading their S&P 500 target to 6900 by year-end. Their case: earlier Fed cuts, still-low yields, resilient mega-cap earnings, and investor willingness to squint past near-term earnings slippage. Forward P/E? Now seen at 22x. That’s rich—and Buffett’s favorite valuation barometer just hit a record high, making it clear the Oracle wouldn’t be buying here.
Gamma has flipped negative again, setting the stage for exaggerated swings in either direction. The summer calm is deceptive. With CPI, earnings season, and an FOMC all converging next week, this fragile equilibrium could shatter quickly. Until then, traders are left to play defense—light exposure, short leash, tight stops.
We’re not in a trending tape anymore. We’re in a minefield.