Core Viewpoint - The U.S. stock market experienced significant volatility in the first half of 2025, reaching historical highs but facing multiple uncertainties that could impact the second half of the year [1] Group 1: Tariff Policy Impact - The direction of tariff policies remains a primary concern, with the potential for new market volatility as trade negotiations approach a critical deadline on July 9. Goldman Sachs estimates that even if some harsh tariffs are lifted, the actual tariff rate in the U.S. has risen from 3% at the beginning of the year to 13%, which may continue to increase inflationary pressures and erode corporate profits [2] - The upcoming Q2 earnings reports will be crucial, with S&P 500 companies expected to see a 5.9% growth in earnings, and investors will closely monitor how companies manage tariff-related costs [2] Group 2: Federal Reserve's Interest Rate Decisions - The Federal Reserve's policy direction is a significant market concern, with Chairman Powell indicating that inflation risks from tariffs are a key factor delaying interest rate cuts. However, the futures market anticipates three rate cuts by the end of the year, with the first potentially in September [3] - The upcoming June non-farm payroll report will be a critical indicator, as any signs of weakness in the labor market could alter rate cut expectations [3] Group 3: Market Dynamics and Technology Sector - The market is witnessing a shift in style, with technology stocks regaining dominance after an initial pullback. The S&P 500 technology sector led with a 15% increase in Q2, contributing nearly 40% of the index's gains. This concentration raises concerns, as the equal-weighted S&P 500 index only rose by 4%, indicating that most stocks did not keep pace with the leading companies [4] - For the market to maintain its upward trajectory, broader participation beyond the tech giants is necessary [4] Group 4: Valuation Pressures - Valuation pressures are significant, with the forward P/E ratio of the S&P 500 reaching 22.2, well above the long-term average of 15.8. Investors are focusing on 2026 earnings expectations, which predict a 14% growth for S&P constituents, as this growth rate will be crucial for supporting valuations [7] - The direction of the 10-year U.S. Treasury yield is also critical; if fiscal stimulus leads to concerns about deficits and yields spike, stock market valuations could face substantial pressure [7] Group 5: Geopolitical Risks - Geopolitical risks remain a looming threat, with recent tensions in the Middle East causing temporary spikes in oil prices. Analysts warn that if conflicts escalate and disrupt oil supply, prices could exceed $100 per barrel, potentially triggering a chain reaction [9] - While historical data shows that geopolitical crises have limited long-term impacts on U.S. stock returns, short-term volatility is likely to increase [9]