By Linh Tran, Market Analyst at XS.com
The S&P 500 extended its upward momentum with a modest gain of 0.02% in the latest trading session. While the increase was slight, it reflects a market sentiment that remains cautiously optimistic amid a complex backdrop of macroeconomic data, geopolitical developments, and an intensifying earnings season. In other words, the market is navigating a delicate balance between expectations and prudence.
The prevailing optimism is being reinforced by notable progress on the global trade front. The United States has reached tariff agreements with both Japan and the European Union, agreeing on lower-than-expected rates coupled with commitments on bilateral trade and investment. These developments have eased concerns about a broad-based trade war and have supported overall risk appetite.
At the same time, ongoing negotiations between the U.S. and China in Stockholm, aimed at extending the current tariff truce, are being viewed positively. A successful outcome could pave the way for a high-level meeting between President Trump and President Xi Jinping. Together, these factors are serving as important tailwinds, helping the S&P 500 maintain its short-term uptrend.
Beyond trade, the market is entering the peak of the second-quarter earnings season. This week, investors will be closely watching results from heavyweight technology firms such as Microsoft, Apple, Amazon, and Meta—key constituents of the S&P 500 index. Should these companies deliver better-than-expected results, the index may sustain its upward momentum and even push toward new highs. Conversely, disappointing earnings could trigger corrective pressures, especially given the current valuation levels, which are elevated relative to historical norms.
Equally important, a series of high-impact macroeconomic data releases is scheduled for this week and could inject further volatility into the market. Investors will be paying particular attention to Q2 GDP figures, the Core PCE Price Index— the Federal Reserve’s preferred inflation gauge—as well as Non-Farm Payrolls. These indicators not only reflect the underlying health of the U.S. economy but also play a critical role in shaping rate-cut expectations for upcoming FOMC meetings. A string of strong reports may lend further support to equities, whereas any signs of weakness could delay hopes of monetary easing and place renewed pressure on the S&P 500.
However, this constructive outlook is still clouded by geopolitical uncertainties. Tensions in the Middle East and Ukraine remain unresolved, with the latest development being President Trump’s announcement of a shortened ultimatum for Russia to reach a ceasefire. He warned of broad sanctions if no deal is struck within the next ten days. Any escalation in these conflicts could reignite risk-off sentiment and prompt a flight to safety—driving flows into assets like gold, bonds, or the U.S. dollar, thereby weighing on risk assets including equities.
In conclusion, the short-term outlook for the S&P 500 remains supported by a combination of favorable trade developments and earnings optimism. This backdrop may allow the index to cautiously extend its gains. However, markets are likely to experience increased volatility this week as they digest critical economic data and remain vulnerable to sudden geopolitical shocks. If upcoming signals turn negative, a technical pullback in the equity market—and in the S&P 500 specifically—cannot be ruled out.