@theMarket: New Highs for First Half of the Year

Mission accomplished. After a tumultuous six months in 2025, equities managed to overcome every obstacle and closed in on new highs. What does that mean for the second half of the year?

 

The short answer is nothing. We start again. Investors need to take each day as it comes. It is a world where governments have more weight and influence in determining the outcomes of both the economy and the markets than ever before.

 

I hope you read last week's column, "Regional Conflicts Present Buying Opportunities." I reminded investors that recent skirmishes, such as the one between Iran and Israel, usually do not last long and have little bearing on markets three to six months out. This week's cease-fire between the two adversaries is a case in point and is partially responsible for the breakout to new highs we are enjoying today.

 

Kudos to Donald Trump for engineering the circumstances that one can hope will make the Middle East a safer place in the future. And lest you think the president headed off to play golf, think again. He is now brow-beating the Senate to pass his Big Beautiful Bill (BBB) before the Senate's self-imposed deadline of July 4. He has already told legislatures that there will be no vacation days for them until this bill passes.

 

A lot is riding on that bill passing. I believe the market has already discounted its passage, so any hiccups or delays could spark a rush toward the existence. The most significant concern among the dissenting Republican politicians is not the spending part of the bill. Like most politicians, they talk a good show on the need to rein in spending but never do. It is that the cuts in Medicaid and other social programs may hurt some politicians' chances in the next election.

 

As investors await an outcome on that front, the president's feud with Fed Chairman Jerome Powell is intensifying. Readers may recall that Trump appointed Powell to lead the Fed back in 2018. Powell's term does not run out until June 2026. But it appears the president doesn't want to wait that long. This week, he floated the idea that he will name his pick to succeed Powell much earlier than is customary, possibly as early as September or October. Interestingly, several members of the Fed are already auditioning for the job by mimicking Trump's demand that the Fed cut interest rates as early as July.

 

Former Fed Governor Kevin Walsh, National Economic Council Director Kevon Hassett, Treasury Secretary Scott Bessent, Fed Governor Christopher Waller, and former World Bank President David Malpass are reportedly on Trump's shortlist. The thinking is that by naming a successor early, the president would undercut Powell's authority for the remainder of his term.

 

The odds of two rate cuts this year are rising, and stocks are climbing in anticipation that this additional pressure will force Powell to reconsider and reduce interest rates.

 

My two cents is that Powell is correct about waiting. As readers are aware, I expect inflation to rise through the end of the year, possibly reaching 2.9-3 percent by December. The Fed's preferred inflation indicator for May, the Personal Consumption Expenditures (PCE) price index, released on Friday, showed an increase, which was in line with my expectations but higher than the Street's forecasts. At best, we need to wait until we know whether or not Trump will do another TACO (Trump Always Chickens Out) on tariffs in July.

 

All indications are that he will once again postpone. China and the U.S. say they are working toward an agreement on tariffs, and Commerce Secretary Howard Lutnick promises that tariff agreements with 10 nations are "imminent." Treasury Secretary Scott Bessent chimed in by predicting that the U.S. could complete the balance of its most important trade talks by Labor Day.

 

Last week, I worried that the war in the Middle East would screw up my bullish forecast: "That leaves the market's range bound and probably short circuits my hope that we could reach 6,100-6,250 on the S&P 500 anytime soon. Now, don't take that as gospel because events could turn on a dime, propelling stocks higher." That is precisely what occurred.

 

We are within striking distance of 6,250, the high end of my target range. Next week is the end of the second quarter and depending on the headlines on tariffs, the BBB, etc., we could see a blow-off top in the markets.  After that, I am looking for some profit-taking in July and possibly August.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at [email protected].