Stock market hits record highs, but a big test looms

7/24/2025 – 10:22 AM

The U.S. stock market has been on a remarkable winning streak, hitting multiple record highs in recent months. But that rally could soon be tested as President Donald Trump’s August 1 tariff deadline draws near. Investors are weighing momentum against mounting risks tied to global trade tensions and expensive stock valuations.

Markets are booming — for now

Six months into Trump’s second term, the stock market looks unstoppable on the surface. The S&P 500 recently closed above 6,300 points for the first time ever, setting its eighth record high this month. Bitcoin has also reached an all-time high, trading above $123,000, while bonds continue a steady rally and oil price volatility has cooled.

It’s a dramatic turnaround from early April, when markets were on edge and the S&P 500 flirted with bear territory after Trump’s first wave of “Liberation Day” tariffs. That drop was followed by one of the strongest post-correction recoveries in U.S. market history.

Investment strategists Liz Ann Sonders and Kevin Gordon at Charles Schwab put it this way: “There is no shortage of things to worry about; but that’s the wall markets often climb.”

Who is driving the rally?

The recent market surge is largely fueled by retail investors — everyday traders — not big institutions. According to Venu Krishna, an equity strategist at Barclays, institutional money remains cautious. He estimates retail investors poured over $50 billion into global stocks just in the last month.

This retail-led buying spree has helped the S&P 500 rise nearly 27% since its April low. The tech-heavy Nasdaq Composite is up 37%, while the smaller Nasdaq 100 has gone 62 straight days without dipping below its 20-day moving average — the second-longest streak in history.

And institutional money may be returning. A July survey by Bank of America showed the largest spike in “risk appetite” ever recorded, with the most bullish investor sentiment since February.

The trade war deadline looms

Despite the upbeat numbers, analysts warn that markets are not immune to shocks — especially if Trump follows through with his August 1 tariff hike.

“The premise that whatever tariff increases come on August 1, they will not be permanent” is what’s keeping markets afloat, said Thierry Wizman, global FX and rates strategist at Macquarie Group.

Investors still believe that Trump’s trade threats are a tactic, not a final plan. “The prospect that ‘deals’ will be struck thereafter remains a factor,” Wizman noted.

But that assumption may be risky. Economists at Capital Economics warn that Trump’s unpredictable trade behavior and ongoing attacks on the Federal Reserve could trigger a market downturn.

Is the market getting too comfortable?

Some strategists say markets may be underestimating the potential fallout from escalating trade tensions. “Tariffs have been very well received,” Trump told NBC News earlier this month, pointing to the market’s recent highs. But others are more cautious.

Megan Horneman, chief investment officer at Verdence Capital Advisors, believes that investor optimism may be masking growing risks. Stocks are now trading at historically high valuations, making them more vulnerable to a correction.

Steve Sosnick, chief strategist at Interactive Brokers, sees the current rally as partly momentum-driven, bolstered by a fear of missing out. “Investors are assuming these tariffs will be postponed, renegotiated or otherwise watered down,” he said. “And if there’s a trade that works well for a long time, they’ll keep doing it.”

Crypto and precious metals join the action

Bitcoin has surged alongside the stock market, peaking above $123,000 as Republican lawmakers advanced legislation to regulate cryptocurrency. As of Tuesday, it was trading around $119,000.

Meanwhile, gold and silver have continued to perform strongly, rising 30% and 35% respectively this year. Both have served as safe-haven hedges amid Trump’s volatile trade policies.

The U.S. dollar has not fared as well. The dollar index, which measures its value against six major currencies, has dropped nearly 11% since Trump returned to office.

What happens next?

With markets perched near record highs and Trump’s August 1 tariff deadline fast approaching, the big question is whether Wall Street will blink.

Ethan Harris, former Bank of America economist, said Trump’s trade pattern is clear: “Trump always tries again,” he wrote on LinkedIn. “His aggressive announcements are a way to test what he can get away with.”

As Harris put it, the real test is whether the stock market will become a “trade war vigilante” — pushing back against Trump’s plans — or remain complacent.

Summary:
The stock market has defied trade turmoil and global uncertainty to post massive gains this year. But with Trump’s August 1 tariff deadline approaching, that momentum could soon hit a wall. Stay tuned for how Wall Street reacts — and whether the rally still has room to run.

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