As US markets complete the recovery are there signs fear turning to greed

Another decent week for stocks, as the US economy continues to advance with limited signs of an upcoming recession. Last week’s employment report exceeded expectations, alongside the monthly PMI and ISM figures, which also suggested a growing economy. Tensions remained relatively subdued in the Middle East, and by week’s end, the tax bill had passed through the House. Treasury yields rose again last week, with the 30-year yield approaching 5%, while the 10-year yield traded just below 4.5%. It will be interesting to see if either surpasses these levels, and whether that will influence already highly-rated stocks.

The pound and the treasury market regained composure as Starmer and Reeves embraced and made peace following last week’s events. One gets the feeling the fortunes of these two are closely linked; should one go, the other will likely follow closely behind, with markets fully aware of the alternative that might replace them. Better the devil you know, I guess.

Looking ahead to the upcoming week, the next few days may see an increase in tariff disputes as the 90-day pause comes to an end. Still, it’s unlikely to match the scale of the Liberation Day revelations. Those yet to reach an agreement with Trump will probably seek a further extension.

This week, we will receive the minutes from the last FOMC meeting, which may provide better insight into the likelihood of a rate cut in July. Last week’s employment data probably ruled out any such possibility. The strength of the UK economy will also come under scrutiny with the release of GDP data for May. April’s 0.3% decline marked a significant deterioration following the 0.7% growth in the first quarter. However, the monthly PMI data did offer some encouragement. Concerns about what lies ahead in the October budget may once again dampen economic activity.

We also see the release of the monthly S&P Global Investment Manager Index. June’s report indicated that, despite stock markets remaining on a strong recovery from the lows in April, US equity investors continue to be highly risk-averse, though somewhat less so than in May, possibly contrasting with the June Merrill Lynch Fund Manager Survey. This survey suggested that fund managers were growing more optimistic, with a notable decline in cash holdings and increased equity allocations. According to the survey, fifty-three per cent of respondents did not expect a US recession within the next 18 months. This is another sign that sentiment is shifting towards a more positive outlook. Bullish sentiment has mostly stayed below the historic average among retail investors throughout the year. However, the latest AAII retail investor survey shows a clear rise in optimism for the months ahead, surpassing the average. When others start to get greedy? You know how the rest goes. Any way as for this morning stocks in Europe are starting on a positive note.