The S & P 500 has shrugged off a litany of economic and geopolitical concerns to recover nearly all of its losses since February’s record high. But that doesn’t mean some of those same concerns are no longer risks to the market in the second half of the year. One big issue could come to a head in early July. Many of the tariffs announced by President Trump have been paused, but only until a July 9 deadline for a deal. With just a few agreements in principle, the Trump administration could soon be forced to make some sort of decision about extending those suspensions or going ahead and implementing tariffs unilaterally. “U.S. trade policy and rhetoric may continue to shift frequently … with elevated uncertainty related to the likelihood of more product-specific tariffs (which alone could still lift the effective tariff rate to more than 10% of total imports), the relatively broad latitude at President Trump’s disposal to reimpose tariffs through other authorities, future rulings by the court of appeals and potentially the Supreme Court, and the risk that impacts on corporate profit margins and households’ purchasing power have yet to be fully felt,” TIAA Wealth Management said in its midyear outlook. .SPX YTD mountain The S & P 500 has almost reclaimed its highs from February. Inflation risk The direction of tariffs could have an impact on another key risk for markets: inflation. Federal Reserve Chair Jerome Powell testified before Congress this week that the central bank is watching for potential price increases tied to tariffs . “The effects of tariffs will depend, among other things, on their ultimate level,” Powell said. Another variable for inflation is the oil market, which has been volatile over the past few weeks due to the conflict between Iran, Israel and the United States. If fighting starts up again, Iran could try to close the Strait of Hormuz, a shipping lane used to transport 20% of the world’s crude oil. The Fed’s decision on rate cuts, along with the status of the tax-and-spending bill making its way through Congress, will also have an impact on the Treasury market. A combination of high deficit spending from the federal government, and the central bank holding rates steady could cause a sell-off in both the bond and stock markets. A Natixis survey, released on Wednesday, said that Treasury market turmoil was seen as the top risk by its own investment managers. Economic risk The state of the U.S. economy is also a risk for investors, especially if the recent weakness seen in the housing market starts to spread to other sectors. JPMorgan’s global research team puts the odds of a recession at 40% in its second-half outlook. In any broad decline in risk assets stirred by a deteriorating macroeconomic outlook and rising recession risk, “we expect U.S. to underperform due to relative valuations and most likely being at the epicenter of the growth shock, however that dynamic could be partly compensated by the large weight of [the] less cyclical tech sector,” JPMorgan strategist Dubravko Lakos-Bujas wrote in the second half forecast. Of course, Wall Street pros are already aware of the risks listed above, amd the stock market may be able to grind higher if there are neutral or even modestly negative outcomes on those fronts. Still, there’s always the risk that something unexpected comes along to derail the market rebound. “There are only two consensus opinions in the world of equity investors that I speak with,” Raymond James strategist Tavis McCourt said in a note to clients Sunday. “One, the [U.S. dollar] will continue to weaken, the second is yields are going higher. We all know what the pain trade would be, and [it] will be interesting if this weekend’s events pressure this consensus,” he added, referring to the U.S. attacks on Iran — CNBC’s Michael Bloom contributed reporting.
