Uncertainty in the market, but not fear

There isn’t a lot of conviction in the pre-open trade. The S&P 500 futures are up three points and are trading fractionally above fair value, the Nasdaq 100 futures are up 56 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down 53 points and are trading 0.1% below fair value.

It is a market operating in a consolidation mode after a big run, yet it is a market that will be described as being in a state of flux due to uncertainty about the tariff situation after President Trump sent several letters to countries indicating the higher rate they will pay starting August 1 if better trade terms for the U.S. cannot be worked out before then.

We wouldn’t say the stock market is fearful about the latest developments for several reasons:

1. Extra time has been given to negotiate better deals. The deadline has been extended from July 9 to August 1, but even the August 1 date isn’t a firm date, according to President Trump, if negotiations are on the right track.
2. The 25% tariff rate Japan is facing is less than the rate of up to 35% that was threatened last week.
3. Neither the EU nor India received tariff letters, as they are reportedly close to deals with the U.S.

Yes, there is uncertainty at the moment (just like always), but, no, there is not fear. There is concern, however, that inflation could be stickier at higher levels, thereby forestalling a rate cut by the Fed. That concern could be percolating in the Treasury market, which will be digesting new supply this week, beginning with today’s $58 billion 3-yr note auction. Results will be released at 1:00 p.m. ET.

The 2-yr note yield is up two basis points to 3.91%, and the 10-yr note yield is up four basis points to 4.43%, having risen 20 basis points this month. It would be entirely remiss, however, not to mention that the yield on the 10-yr note is also 14 basis points less than where it was when the year began. So, it is a stretch to suggest at this time that there is clear inflation fear in the Treasury market.

The latter point notwithstanding, the direction of travel for Treasury yields will have some influence over a stock market trading at a full, if not rich, valuation going into the Q2 earnings reporting period. If nothing else, the bump in yields to begin the week, like the sending of the tariff letters that was telegraphed last week, has provided an excuse to take some money off the table.

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Originally Posted July 8, 2025 – Uncertainty in the market, but not fear