(Bloomberg) — Traders are snapping up risky assets of all stripes in the hope that falling US interest rates will add rocket fuel to an economy that’s so far been able to withstand the effects of Donald Trump’s trade war.
Wall Street is set to extend record highs when trading begins on Wednesday, with shares of small-cap, emerging-market and semiconductor companies leading gains. Across global markets, everything from volatility indexes to speculative European bank bonds to crypto is underscoring a sense of confidence about corporate profits and global economic growth.
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Any worries about President Trump’s tariffs and whether America’s confusing economic policy is casting a chill on spending are being wiped away by the earnings power of big US tech companies. The latest economic readings also paint a picture of a soft labor market and inflation that’s been in line with expectations, which may allow the Federal Reserve to cut interest rates at its next meeting. For some investors, the question now is whether assets prices have risen too fast, given that the full effect of tariffs may take some time to filter through the US economy.
“The mood is surprisingly bullish; it’s almost like ‘what tariffs, who cares?’ said Neil Birrell, chief investment officer at Premier Miton Investors. “There’s this detachment from economic reality on what’s happening and there’s a wave of either optimism or exuberance in equity markets.”
At the moment, the mood on Wall Street is all about the optimism for rate cuts. Swaps are pricing in about a 90% chance of a quarter-point move by the Fed in September, and some traders betting on an even bigger reduction. In an interview on Bloomberg TV, Treasury Secretary Scott Bessent said “we should probably be 150, 175 basis points lower.”
The S&P 500 has surged almost 30% since a low in April, when Trump first unveiled his tariff plans. The gauge is also up 11% since he won the election in November. The Russell 2000 index of small-cap stocks is gaining for a fourth straight month.
“The US market has gotten a new leg of steam,” said Guy Miller, chief investment strategist at Zurich Insurance Co. “We’re no longer hearing about so much diversification away from the United States. In fact, the reverse. Investors are saying the only sure thing is that US big-cap tech are going to continue to deliver on earnings.”
