A 2-month rally pushed the stock market to record highs — but watch for these risks in JulyJuly is historically a strong month for stocks, but macroeconomic updates loom
By
Gordon Gottsegen
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Published: June 29, 2025 at 12:00?p.m. ET
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 Here are the red flags investors should look out for in JulyPhoto: MarketWatch photo illustration/iStockphoto
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The stock market shrugged off the U.S. bombing of Iran, the continuing global trade war and a Wall Street adage advising investors to “sell in May and go away” — and now looks to end June near record territory.
Both the S&P 500 and Nasdaq Composite hit record closing highs on Friday, surpassing previous highs reached in February and December, respectively. There are a few things that could push this rally further, but there are also risks that investors should be aware of.
First, here are the tailwinds.
The Dow Jones Industrial Average
DJIA
+1.00%
, S&P 500
SPX
+0.52%
and Nasdaq Composite
COMP
+0.52%
all hit 52-week intraday lows on April 7, during the selloff that followed President Donald Trump’s “liberation day” tariff announcement. But the bounce back since then has been pretty dramatic. After the three indexes slipped into correction and bear-market territory in early April, news of a 90-day pause on tariffs caused the indexes to recover from some of those losses. While the Dow dropped 3.2% in April, the S&P only lost 0.8%, and the Nasdaq was actually up about 0.9% for the month.
This led into an especially strong May, and although June has one trading day left, stocks are poised for a significant two-month rally. The Dow gained 3.9% in May and 3.7% so far in June; the S&P gained 6.2% in May and 4.4% so far in June; and the Nasdaq was up 9.6% in May and 6.1% in June to date. This throws a wrench in the old Wall Street saying of “sell in May and go away” — doing so would’ve been a terrible idea.
Read more: Investors who followed ‘sell in May and go away’ are missing what could be the best May for the S&P 500 in decades
Because of these gains, the S&P 500 was able to stage its quickest-ever recovery to all-time highs after dropping 15% or more. It dropped 18.9% from its previous closing high on February 19 to its closing low on April 8. With the index closing at a record high on Friday, it only took 89 days to regain all-time highs — beating the previous record turnaround of 90 days in 1998.
 The S&P 500 just pulled off its quickest turnaround after a loss of 15% or more.Photo: Dow Jones Market Data
“History told us that that was going to happen. It took us 22 calendar days to go from the all-time high to the minus-10% threshold. Normally, it takes more than 80 calendar days,” Sam Stovall, chief investment strategist at market research firm CFRA Research, told MarketWatch. “So looking at the swiftest quartile of declines of 10% or more, they end up also being the shallowest quartile and the quickest to recover what was lost.”
In other words, swift downturns are often followed by a brief period of lows before the market pops back up. Stovall said that historically when stocks stage this sort of recovery, they often continue to rally beyond the initial highs.
“Once we have recovered all that we lost in a prior decline of 10% to 20%, there’s another advance between 6% and 10% on average, before slipping into a new decline of 5% or more,” Stovall said. “We can be adding another 300 to 600 points on the S&P 500, before we end up turning around and digesting those gains.”
This coincides with a strong window of time in terms of market seasonality. Historically, the S&P 500 ended the year higher 77.1% of the time after gaining in both May and June, according to Dow Jones Market Data, resulting in an average annual gain of 6.8%.
July also tends to be a solid month for markets: Historically, it has been the strongest month for the Dow Jones Industrial Average and S&P 500 in terms of average monthly performance. The Dow’s average July performance is a 1.5% gain, while it’s 1.7% for the S&P and 0.9% for the Nasdaq, according to Dow Jones Market Data.
 July is historically a good month for the three major indexes.Photo: Dow Jones Market Data
But even with these historical trends potentially propelling stocks higher, there are a few macroeconomic risks that investors should watch out for in July.
Trump’s One Big Beautiful Bill could move markets either wayThe White House has said that it hopes to get President Trump’s One Big Beautiful Bill Act signed before July 4. If this deadline holds up, investors could get an important update on the country’s tax policy going forward.
The stock market rallied last November following Trump’s win in the presidential election. One of the reasons was Trump’s promise to cut corporate taxes; lower corporate tax rates are expected to benefit stock fundamentals, because they result in lower costs for businesses.
Trump cut corporate taxes in his Tax Cuts and Jobs Act in 2017, which caused the stock market to rally at the time. Many of those tax cuts are due to expire at the end of 2025. Yet despite the new tax bill promising to extend and further those cuts, stocks may not see the same bump as they did in 2017.
“In 2017-2018, you went from 35% [corporate tax rate] to 21%. The first derivative impact of that was quite meaningful to overall corporate earnings. This time around, I think it’s going to be less meaningful,” Dan Skelly, head of Morgan Stanley’s wealth-management market research and strategy team, told MarketWatch.
Skelly said if Congress doesn’t pass the tax bill, it would be the equivalent of a corporate tax hike when the old bill expires, and the stock market may react poorly to the impact on corporate earnings. But even if the bill is passed, it might not have an impact quite as dramatic as the 2017 tax bill.
On top of that, there are elements of the new tax bill that may negatively impact markets in the short term because it would increase deficit spending.
“I think most people perceive passing the bill as being pro-growth, pro-business and pro-spending over time, and I do as well. That should be good for the market in the long run,” Skelly said.
“But in the short run, when the bill gets through … Congress is going to vote to lift the debt ceiling,” he added. “Once the debt ceiling’s lifted, that means that the Treasury Department is going to refill the Treasury General Account, which will actually be liquidity-negative, and that actually could be a short-term hiccup for markets.”
The 90-day tariff pause is almost overThe stock market recovered from its April lows after the Trump administration announced a 90-day pause on most of the newly announced tariffs. However, that 90-day pause is due to expire July 9.
The White House has downplayed this deadline as “not critical” and said that it could provide its own trade-deal terms if negotiations aren’t met. But even if this isn’t a strict deadline, there’s a chance that tariffs and trade policy could recapture headlines and swing markets.
Investors got a taste of this on Friday: After stocks opened firmly higher in the morning, they lost steam in the afternoon after Trump said he was ending trade talks with Canada.
“The idea that all is done and settled on tariff negotiation outcomes I think is misguided,” Skelly said.
As tariffs regain the attention of investors, they’ll have to factor in the impact that tariffs could have on the overall U.S. economy, inflation and the companies in their portfolios.
“We think it likely that at least some of the April 2 reciprocal tariffs will apply, and that should create pressure on the U.S. economic sectors in the form of higher prices, lower corporate profits or reduced business investment,” analysts from the Wells Fargo Investment Institute wrote in a note.
Earnings season kicks off mid-JulyJuly represents the beginning of the third quarter of 2025, and companies will start to report quarterly earnings in the middle of the month. This will give investors updates on how businesses are navigating macroeconomic challenges like the new tariffs.
“I think this earnings season is going to be particularly important,” David Lundgren, chief market strategist at Little Harbor Advisors, told MarketWatch. “We’ve had these tariffs, and the impact of these tariffs — from what I can tell — are not showing up anywhere. So somewhere these tariffs are being eaten by somebody, and it may be we discover that they’re being eaten by corporations, by depressed profit margins.”
Such depressed profit margins could easily spook investors, Skelly said, especially because many of the leading stocks are trading at such high valuations. He noted that the rally of the S&P 500 off of its recent lows has mostly been driven by a few large-cap names, resulting in concentration risk for the market. If those large-cap stocks report poor earnings, they could bring down the whole market with them.
The “Magnificent Seven” tech companies are expected to report earnings at the end of July going into early August. That’s when the market could react if those large companies disappoint investors.
“The last week of July and first week of August is going to be really crucial in terms of whether or not [the Magnificent Seven] can maintain the kind of sequential momentum from last quarter,” Skelly said.
Stocks ended the last full week of June on a positive note. The Dow Jones Industrial Average was up 3.8% for the week. Meanwhile, the S&P 500 gained 3.4% and Nasdaq Composite added 4.2%.
Investors will get updates on the U.S. labor market this upcoming week. Data on job openings in May is slated for Tuesday, ADP employment data for the month of June comes out on Wednesday, and Thursday will bring the June employment report and unemployment rate. |
