Investors brace for July 9 while cautious optimism drives rally
All eyes are on Washington this week as investors await the July 9 expiration of the temporary pause on U.S. import tariffs. If no major escalation occurs, it could provide a near-term tailwind for markets that have already surged to record highs amid trade volatility and economic uncertainty.
President Donald Trump’s administration is racing to finalize deals with over a dozen key trading partners. A breakthrough with Vietnam was announced Wednesday, reducing the previously proposed 20% tariff on many Vietnamese exports. Negotiations with India are progressing, but talks with Japan—America’s sixth-largest trade partner—have stalled, raising the risk of renewed tension.
Since Trump’s sweeping tariff announcement on April 2, the S&P 500 has gained roughly 26%, buoyed largely by retail investor activity and corporate buybacks. Institutional investors, however, remain cautious. According to Deutsche Bank, institutional equity positioning remains significantly below pre-April levels, despite the market rebound.
Retail investors lead rally, institutions stay wary
“This has definitely been a junkier rally,” said Lisa Shalett, CIO at Morgan Stanley Wealth Management. “Retail is driving the upside, while institutions are barely participating.” She added that elevated valuations and growth uncertainty continue to hold back institutional confidence.
Still, market strategists agree that clearing the July 9 tariff hurdle without conflict would be a bullish sign. “There may be saber-rattling, but it no longer poses a major danger,” said Irene Tunkel of BCA Research. However, she warned that geopolitical risk remains embedded in the outlook.
Other analysts caution that the tariff truce may not be permanent. “I don’t view it as a hard stop,” said Julian McManus of Janus Henderson. “The pause was always a strategic delay, not a resolution.” He compared current investor behavior to that seen after the pandemic crash of 2020, when stock allocations recovered slower than index levels.
July’s seasonal strength and what’s next
Despite the unease, historical trends could offer support. Over the past 20 years, July has averaged a 2.5% return for the S&P 500, according to LSEG data. That seasonal strength may encourage more equity exposure—especially if trade risks fade.
Looking ahead, investors will closely monitor upcoming inflation data and second-quarter earnings for signs of continued economic resilience. The Federal Reserve’s stance on interest rates will also be in focus, especially after recent data suggested job market strength.
“Institutions are reaching a decision point,” said Shalett. “They have to choose: do they believe in the rally or step back further?”
