Insights 
VT 
European indices and US futures have eased their session gains. The DAX is up 0.1%, while the CAC 40 has risen by 0.2% during European morning trade. In the US, the S&P 500 futures now show a 0.2% increase, down from an earlier 0.5% rise. This change follows a lacklustre performance on Wall Street, driven by disappointing US ISM services PMI data.
Concerns about US economic data are starting to affect markets. Currently, investors are considering both deteriorating data and potential relief from Federal Reserve easing for the slowing economy. Despite already pricing in a September rate cut and two cuts by the end of the year, market optimism may be limited without more aggressive Fed action. A potential surprise in US labour market data in Q3 could affect market sentiment.
Impact of US Tariffs
Tariffs imposed by the US administration remain a concern. Even as trade negotiations continue, the adverse impacts of tariffs persist. The upcoming CPI report will offer insights into the ongoing effects of these tariffs, particularly in relation to consumer prices influenced by recent PMI data. The AI sector has bolstered the market, and the upcoming quarter will test the resilience of the leading tech companies.
The market is showing signs of weakness, with early gains in stock futures disappearing as of August 6, 2025. We are seeing this because recent data, like the July ISM Services PMI that came in at a disappointing 51.2, hinted at a slowdown. This challenges the “strong economy” story that powered stocks higher in the first half of the year.
We can’t count on the Federal Reserve to boost the market much further from here. Rate traders have already priced in a quarter-point cut for the September meeting, with fed funds futures showing over a 90% probability. Any more good news from the Fed is likely already baked into current stock prices.
The big risk on the horizon is a potential weakening in the US labor market, which could be the trigger for a correction. With the VIX currently hovering near multi-year lows around 14, buying some protection seems cheap right now. We could consider buying VIX call options or purchasing put options on the S&P 500 as a hedge against a sharp downturn.
Inflation and Trade Negotiations
We also need to watch the impact of tariffs on inflation, especially with the ongoing trade negotiations. The upcoming Consumer Price Index (CPI) report is critical, as it could show businesses are finally passing these higher costs to consumers. Looking back at the trade disputes of 2018-2019, we saw how tariffs created market uncertainty for months.
The rally this year has been incredibly narrow, driven almost entirely by the giant AI and tech stocks. With the Magnificent 7 making up over 30% of the S&P 500’s value, any weakness in their performance could bring the whole market down. Traders should think about buying protective puts on tech-heavy ETFs like the QQQ to guard against this concentration risk.
