The summer rally in U.S. equities, built on strong corporate earnings, declining Treasury yields, and subdued oil prices, faces critical tests in the weeks ahead, according to Raymond James.
In a research note, the firm highlighted that “this rally is built on low oil prices, declining Treasury yields, and steady labor market.”
“All 3 of these will be tested post-Labor Day as Russia/Ukraine continues, another month of jobs data is revealed, and the bond market digests an Appeals court ruling against the legality of some of President Trump’s tariffs,” wrote Raymond James analysts.
The firm said global equities have been in a rising asset environment since April, with “nearly every equity index at all-time highs, credit spreads near record lows, [and] non-equity assets at all-time highs.”
The backdrop, it noted, has been supported by “impressive corporate earnings results and 10-year Treasury bond yields that have trended down as the bond market has not reacted to the modest evidence of tariff induced inflation.”
The analysts also flagged skepticism around artificial intelligence stocks, noting that while capex at major cloud companies continues to expand, “the performance of AI stocks faded in late August as the market broadened” amid concerns about underwhelming new models and an MIT report suggesting many AI projects are failing.
Looking ahead, Raymond James pointed out that earnings growth across midcap and small-cap indexes is expected to accelerate in late 2025 and into 2026. Still, it cautioned: “The earnings expectations setup remains for broadening, but it was a year ago too.”
Source :
https://www.investing.com/news/stock-market-news/all-bullish-catalysts-for-sp-500-will-be-tested-postlabor-day-raymond-james-4219117
