Market Sanity Check

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Alright so there is an elephant in the room, or maybe a few. No way I’m the only one feeling off about all this.

The S&P 500 posted its best May since 1990, and another 4.4% for June. If we go back to April lows, we're up around a whopping 28%. Keep in mind this is through massive geopolitical tariff uncertainty, Middle Eastern bombings (that the U.S. is involved in), and a $3.3 trillion spending bill trying to get passed. Through all this, the market is RIPPING, and… it's important to take notice.

As we dig please take everything with a grain of salt. I hate academic theoretical modeling as the next person in regards to the market but that and historical data is all i have to go off of in times like this.

Elephant #1: Trade War

July 8th and 9th are the key dates. The reciprocal tariff pause expires for 200 countries, and the EU faces 50% tariffs if no deal gets done.

Current scoreboard: UK has a deal, China got their tariffs cut from 145% to 30%, but the EU is still stuck and Canada has walked away entirely …apparently. Commerce Department investigations on semiconductors, pharmaceuticals, and aircraft are about to drop, this could trigger more tariffs.

The inflation math is simple: current tariffs add a projected 0.9 percentage points annually, doubling them adds another 0.7 points. That's nearly 1.6 percentage points of additional inflation if things go sideways.

Elephant #2: Middle East Tension

June 13-24: 12-day conflict that ended with the largest B-2 stealth bomber operation in U.S. history. "Operation Midnight Hammer" hit three Iranian nuclear facilities using 7 B-2 bombers and over 75 precision-guided weapons. Iran retaliated by striking the Al Udeid Air Base in Qatar before a ceasefire was brokered.

Oil went from $67 to nearly $80 during the conflict, then crashed back down to the $67-70 range after the ceasefire. In reality, that's a $10+ geopolitical risk premium that appeared and disappeared in less than a week and a half. Markets are acting like this kind of volatility is normal, but the Strait of Hormuz handles 20% of global oil → any future disruption there could spike prices to $120-130. (In theory)

Elephant #3: Congress Wants to Add $3.0 Trillion to the Tab

The House passed the "One Big Beautiful Bill Act" by 215-214 on May 22nd - adding $3.0 trillion to deficits over the next decade according to CBO estimates. This comes while 30-year Treasury yields crossed 5.09% in May (highest since October 2023) and we're staring down a debt ceiling crisis in August-September when Treasury extraordinary measures run out.

Moody's downgraded the U.S. from Aaa to Aa1 last month on the 16h - the first time in over a century they've cut America's rating. All three major agencies now rate us below AAA. The bond market is pricing in serious fiscal risk with elevated MOVE index levels, while Congress debates adding another $3 trillion during a potential debt ceiling standoff.

Despite all this, the market is RIPPING +28% in 2.5 months.

 Is this sustainable?

Happy Sunday, stay curious

- John

P.S. bi-partisan news in our sponsor today

Sources: Analysis based on Panmure Liberum estimates, CNBC tariff deadline reporting, Commerce Department Section 232 investigations, NPR conflict reporting, Congressional Budget Office deficit projections

Disclosure: Always conduct your own research and consult with a financial advisor before making investment decisions. This analysis reflects Pivot and Flow’s views and isn’t personalized advice. All investments carry risk, including complete loss of principal.

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