Markets are entering June under pressure as global trade tensions escalate anew, threatening the momentum that drove the S&P 500 to a remarkable 5.6% gain in May—its strongest monthly showing since November 2024 and best May performance since 1997. The month’s impressive rally, largely fueled by the U.S.-UK trade deal announcement, is now being tested by fresh disputes between the U.S. and China.
Both nations are accusing each other of breaking recent agreements, with rare earth exports from China potentially at the center of the conflict. Adding to trade uncertainty, President Trump has doubled steel tariffs from 25% to 50%, drawing sharp criticism from Canada and the EU. Meanwhile, a U.S. Court of International Trade decision ruling against tariffs under IEEPA has added legal uncertainty to an already complex trade landscape.
This week’s focus will center on the May jobs report Friday and Fed Chair Powell’s comments Monday, as markets seek clarity on both economic fundamentals and monetary policy direction amid renewed trade volatility.
Key Events This Week
Monday – June 2
- S&P Final Manufacturing PMI (9:45 AM ET) Forecast: 52.3 (vs. 52.3 prior) Confirmation of manufacturing sector resilience.
- ISM Manufacturing (10:00 AM ET) Forecast: 48.5% (vs. 48.7% prior) Still below the critical 50 expansion threshold.
- Construction Spending (10:00 AM ET) Forecast: +0.2% (vs. -0.5% prior) Modest rebound expected after April’s decline.
- Fed Chair Powell Opening Remarks (1:00 PM ET) Critical commentary on trade impacts and monetary policy outlook.
- Auto Sales Forecast: 17.3 million Annual rate continues to show consumer resilience.
Tuesday – June 3
- Factory Orders (10:00 AM ET) Forecast: -3.2% (vs. +4.3% prior) Sharp reversal expected after March’s surge.
- JOLTS Job Openings (10:00 AM ET) Previous: 7.2 million Labor demand remains historically elevated.
- Fed Governor Cook Speech (1:00 PM ET) Additional Fed perspective on current economic conditions.
- Dallas Fed President Logan Remarks (3:30 PM ET) Regional economic insights from Texas.
Wednesday – June 4
- ADP Employment (8:15 AM ET) Forecast: 112,000 (vs. 62,000 prior) Private sector job growth expected to rebound.
- S&P Final Services PMI (9:45 AM ET) Previous: 52.3% Services sector strength continuation.
- ISM Services (10:00 AM ET) Forecast: 52.2% (vs. 51.6% prior) Expected to remain in expansion territory.
- Fed Beige Book (2:00 PM ET) Regional economic conditions survey provides nationwide economic snapshot.
Thursday – June 5
- Initial Jobless Claims (8:30 AM ET) Previous: 240,000 Labor market health indicator remains critical.
- U.S. Trade Deficit (8:30 AM ET) Forecast: -$90.3B (vs. -$140.5B prior) Improvement expected amid trade policy changes.
- U.S. Productivity (8:30 AM ET) Forecast: -0.8% (unchanged) Q1 revision likely confirms productivity challenges.
- Philadelphia Fed President Harker Speech (1:30 PM ET) Manufacturing region perspective on economic conditions.
Friday – June 6
- U.S. Employment Report (8:30 AM ET) Jobs: +125,000 (vs. +177,000 prior), Unemployment: 4.2% (unchanged) The week’s marquee event.
- Average Hourly Earnings (8:30 AM ET) Forecast: +0.3% MoM (vs. +0.2% prior), +3.8% YoY Wage growth remains key inflation input.
- Consumer Credit (3:00 PM ET) Forecast: $10.2B (unchanged) Consumer borrowing appetite indicator.
Market Insights
The strong May performance—with the NASDAQ 100 posting an even more impressive 7.77% gain—has led many analysts to suggest markets are overbought in the near term and could be due for a breather. However, historical precedent offers perspective: past credit downgrades in 2011 and 2023 led to short-term S&P 500 drops of around 10%, only for markets to rebound with gains exceeding 35% within a year.
This suggests that while volatility may spike during periods of heavy rebalancing and uncertainty, the underlying economic fundamentals may provide longer-term support. Supporting this view, Morgan Stanley recently upgraded its stance on U.S. equities to “overweight,” citing a global economy that continues expanding despite some deceleration.
Fed Governor Christopher Waller’s recent comments that “interest rate cuts remain possible later this year even as the Trump administration’s tariff regime is likely to push up price pressures temporarily” provide important context for monetary policy expectations. This suggests the Fed maintains flexibility despite trade-related inflation pressures.
The renewed trade tensions come at a particularly sensitive time, as markets had been rallying on hopes that the U.S.-UK agreement could pave the way for broader trade normalization. The current escalation with China and the doubling of steel tariffs suggests the trade landscape remains highly fluid and policy-dependent.
Friday’s jobs report will be particularly crucial, as signs of an economic slowdown have yet to emerge in labor market data. Economists expect this trend to continue, but any significant deviation could alter Fed policy expectations and market sentiment significantly.
The oil market’s recent dynamics—with major producers agreeing to increase crude production for the third consecutive month—add another layer to the inflation equation, potentially providing some offset to tariff-driven price pressures.
Bottom Line
Markets face a critical test this week as renewed trade tensions challenge the narrative that drove May’s impressive rally. While the month’s 5.6% S&P 500 gain demonstrated underlying resilience, the escalation in U.S.-China disputes and expanded steel tariffs create fresh uncertainty.
Fed Chair Powell’s Monday remarks will be closely scrutinized for insights into how trade developments might influence monetary policy, while Friday’s jobs report represents the week’s most significant data point for gauging economic momentum.
The key question is whether the strong economic fundamentals that supported May’s rally can withstand renewed trade volatility, or if markets will need to consolidate recent gains as policy uncertainty resurfaces. With technical indicators suggesting overbought conditions, any negative surprises could trigger more significant selling pressure.
The content provided in Market Impact is for informational purposes only and should not be considered as investment advice. Always consult with a qualified financial advisor before making investment decisions.