S&P500 Forecast: Can the Stock Market Sustain Momentum with Fed and Trade Risks Ahead?

S&P 500 Rebounds, but Traders Brace for Volatility Heading into Late June

After a 20% rally from April lows, U.S. stocks have regained ground, but traders are approaching the second half of June with caution as persistent headwinds weigh on sentiment. The S&P 500 closed back above the 6,000 mark for the first time since February, yet analysts warn this recovery may mark a pause—not a pivot—in market pressure.

The recent bounce has been largely attributed to tariff delays, dubbed a “fiscal put” by Fidelity, which helped avert a steeper correction. Still, stretched valuations are raising red flags. With the forward P/E ratio nearing 21, many strategists see limited room for upside and expect a trading range to define the second half of 2025.

Are Ongoing Tariff Risks Capping Upside for Equities?

Trade uncertainty remains a major overhang. Markets reacted sharply to President Trump’s April tariff announcement—dubbed “Liberation Day”—which triggered the year’s steepest selloff. While a 90-day tariff pause has helped stabilize equities, the July 9 expiration could reignite volatility, especially if a deal with China or other key partners fails to materialize.

The tariff standoff is already weighing on business investment and consumer sentiment. Economists warn that unresolved negotiations could shave off GDP growth through the rest of the year. With few signs of resolution, markets remain vulnerable to sudden moves tied to trade headlines.

How Is the Federal Reserve Responding to Mixed Economic Signals?

The Fed is expected to hold rates steady at 4.25%–4.50% in its upcoming June meeting, as inflation shows signs of easing but labor data deteriorates. CPI and PPI have cooled to 2.4% and 2.6%, respectively, but BNP Paribas warns that sustained tariffs could keep inflation elevated into 2026.

Meanwhile, job growth slowed dramatically. ADP reported just 37,000 new payrolls in May—well below expectations—suggesting a softening economy. Rate cut expectations have risen slightly, with markets pricing in nearly two 25-basis-point cuts this year, though skepticism remains over whether the Fed will act.

Are Geopolitical Events Driving Market Correlations?

The Israel-Iran conflict added a fresh layer of risk. Gold and oil surged while equities pulled back as risk-off sentiment returned. Crude prices jumped 5%–7% on Middle East tensions, and while short-term, such spikes complicate inflation outlooks and central bank policy planning.

What’s the Market Outlook Heading into Q3 2025?

Market resilience since April is notable, but analysts see limited momentum ahead. Unless trade deals progress, Fed policy shifts, or geopolitical tensions ease, equities are likely to remain range-bound. Traders are opting for selectivity and patience over broad risk-taking, positioning for volatility rather than a sustained rally.

More Information in our Economic Calendar.