A proposed trade deal with Japan gave Wall Street the excuse it needed to keep stocks moving upward, despite problematic earnings reports and manufacturing data.
MANHATTAN (CN) — Investors this week were willing to overlook further cracks in the economy to latch onto news of a pending trade deal.
The resulting increases to equities sent the S&P 500 to a record-high 6,388 points after a weekly gain of 92 points, while the Dow Jones Industrial Average gained 259 points and the Nasdaq 213 points.
A U.S. trade deal with Japan, announced on Tuesday, capped tariffs with the country at 15% and figures to open Japan’s economy to further importation of American-made automobiles and agricultural products.
Not even bad earnings reports — from Intel announcing a 15% cut to its workforce, Tesla reporting a 16% decline in car revenue and the $1.1 billion hit on General Motors due to automotive tariffs — caused markets to flounder much.
Nor were investors dismayed by a negative manufacturing report on Friday from the U.S. Census Bureau, which showed durable orders dropped 9.3% last month. The decline was less than forecast, and analysts peg it on the decline in aircraft purchases following May’s deal between Qatar Airways and Boeing.
“We are seeing some divergence in earnings, but for the most part companies are beating expectations and keeping the stock rally going,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “As long as trade policy and tariff headwinds are minor, the market can keep moving higher and we are now optimistic for the second half of this year.”
Other measures aren’t so positive. On Monday, the Conference Board’s monthly economic indicators came in at 98.8, posting a 0.3% decline last month after it had remained steady in May. The index has dropped 2.8% over the first half of the year and is below the 50-point mark — signaling an incoming recession — for the third straight month.
“For the second month in a row, the stock price rally was the main support of the [index],” Justyna Zabinska-La Monica, a senior manager at the board, said in a statement. “But this was not enough to offset still very low consumer expectations, weak new orders in manufacturing, and a third consecutive month of rising initial claims for unemployment insurance.”
The board noted real GDP is projected to grow by 1.6% for 2025, with Zabinska-La Monica chalking that up to “the impact of tariffs becoming more apparent in [the second half] as consumer spending slows due to higher prices.”
Some analysts say the Conference Board’s indicator should be taken with a grain of salt, though. Matthew Martin, senior U.S. economist at Oxford Economics, pointed out that the index previously hinted at recessions in 2022 and 2023 that never came to fruition.
“Good things are in the pipeline for next year from fiscal stimulus, less policy uncertainty and support from [artificial intelligence]-related business investment,” Martin wrote in an investor’s note, pegging the odds of a recession in the next year at 35%.
Concerns about a recession have kept the Federal Reserve from lowering interest rates, as concerns tariffs might reignite inflation in the coming months. On the other side, President Donald Trump has repeatedly called for the Fed to lower interest rates.
The friction between the Trump and Fed Chair Jerome Powell over interest rates reached another nadir on Thursday, after the president toured the central bank’s renovations. When asked what it would take to get him to stop criticizing Powell, Trump answered: “I’d love him to lower interest rates.”
During the surprise meeting, Trump also raised issues of the central bank running over budget on its renovation, claiming the Fed had spent $3.1 billion redoing its building. That prompted a puzzled Powell to shake his head and rebut Trump’s claims on camera.
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