The second half of the year began with momentum for U.S. financial markets. In a shortened week due to the July 4th holiday, major indexes resumed their upward path and reached new all-time highs, fueled by strong employment data, continued tech enthusiasm, and healthy sector rotation.

However, it wasn’t all celebration: trade tensions resurfaced with former President Donald Trump’s announcement of new tariffs, and markets are preparing for a second half where international politics could take center stage again.

Records keep coming: the rally remains alive

The S&P 500 and Nasdaq hit fresh record highs this week. The S&P gained 1.7%, the Nasdaq 1.6%, and the Dow Jones led the way with a 2.3% increase, coming within reach of its own all-time high. The Russell 2000, which tracks small-cap stocks, jumped 3.6%, showing that optimism is spreading beyond Big Tech.

Technology continued to lead, with companies like Nvidia, Datadog, Cadence, and Synopsys among the top performers. Nvidia is nearing a $4 trillion market cap, and Datadog celebrated its entry into the S&P 500 with a nearly 15% jump. AI and software demand continue to fuel Nasdaq gains.

Solid labor market, cautious optimism

A key driver of the rally was the strong June jobs report. The U.S. economy added 147,000 jobs, beating expectations, with unemployment holding steady at 4.1%. These numbers reaffirm a resilient economy with no clear signs of recession.

However, this strength could delay the rate cut investors are hoping for in September. Futures markets still price in a high probability of a cut, but solid labor data may push the Fed to wait longer before taking action.

Broadening rally: sector rotation in play

A notable shift this week was the broadening of the rally. Unlike previous weeks where Big Tech carried the gains, this time cyclical sectors like energy, materials, and financials also performed strongly.

This indicates growing confidence in the broader economy and helps dispel fears of a narrow tech-driven bubble. The Russell 2000 finally turned positive for the year, reflecting this wider momentum.

Tariffs on the radar: trade uncertainty returns

While sentiment remained broadly positive, clouds are forming. Donald Trump announced a new set of trade tariffs to take effect in August, rekindling fears of a potential trade war—especially if the measures target BRICS countries or sensitive sectors like tech and consumer goods.

Analysts warn that this could spark volatility in the coming weeks, with investors watching closely for retaliation or escalation from U.S. trade partners.

Summary:

• S&P 500 +1.7%, Nasdaq +1.6%, both at record highs

• Dow Jones +2.3%, Russell 2000 +3.6%

• 147,000 jobs added, unemployment steady at 4.1%

• Big gains from Nvidia, Datadog, and Synopsys

• Broader rally with strength in cyclical sectors

• New tariffs may introduce uncertainty

What to watch next week:

1. Developments around Trump’s tariffs and global reactions

2. Upcoming inflation and consumption data

3. Q2 earnings season kicks off, with banks and tech in the spotlight

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