🦔 Welcome back to another week of breaking down what's really moving markets! This week brought us fresh all-time highs across major indices, with the S&P 500 and Nasdaq both posting impressive gains. Since the April 8 lows, we've seen a remarkable 24% rally in the S&P 500 and a stunning 33% surge in the Nasdaq.

But here's what I want to focus on: this isn't just random summer optimism. There are three specific factors driving this rally, and understanding them will help you navigate what comes next.

1. Geopolitical Tensions Cool, Oil Crashes

The weekend of June 21-22 brought us exactly the kind of Middle East escalation that typically sends markets into a tailspin. The US launched surprise airstrikes on three Iranian nuclear facilities, and everyone braced for the worst.

Instead, we got a masterclass in measured retaliation. Iran hit a US base in Qatar with no casualties or material damage, and crucially, stayed away from oil infrastructure and the Strait of Hormuz.

The oil market told the whole story. WTI crude, which had surged over 20% in June to $75/barrel, crashed 13% last week to around $65. That's not just good news for your gas tank heading into summer driving season, it's removing a major inflationary pressure point that had the Fed worried.

2. Fed Rate Cut Expectations Solidify

The Federal Reserve's June meeting reinforced their bias toward lower rates. Their updated dot plot shows two potential cuts in 2025, with the fed funds rate eventually settling at 3.0% long-term compared to today's 4.25-4.5%.

The economic data is backing up this outlook:

This combination of cooling inflation and softening consumer demand is exactly what the Fed needs to see to start cutting rates without reigniting price pressures.

3. Tech Leadership Returns with Conviction

The third driver has been the renewed dominance of mega-cap technology stocks. Since April 8, growth sectors have massively outperformed:

What's different this time is that these companies are delivering on fundamentals, not just hype. Q1 earnings showed tech giants not only maintaining massive AI infrastructure spending but actually beating revenue and earnings expectations despite tariff uncertainty and China restrictions.

While momentum appears strong heading into summer, I want to highlight the potential speed bumps ahead:

Trade and Tax Uncertainty We got a reminder late in the week when trade talks with Canada collapsed over a digital services tax dispute. The market's immediate negative reaction shows how sensitive investors remain to trade policy changes.

The "Big Beautiful Bill" negotiations in Congress remain contentious, with significant differences between House and Senate versions that could derail the entire package.

Economic Softening The consumer spending weakness we're seeing could accelerate if confidence continues to deteriorate. We're walking a fine line between "cooling enough for Fed cuts" and "cooling too much for growth."

Valuation Concerns Tech valuations have crept higher again with this rally. While earnings growth justifies some premium, the pace of gains may need to moderate from here.

The concentration in mega-cap tech creates both opportunity and risk. While I recommend maintaining equal-weight exposure to technology and AI themes, this rally has created valuation disparities worth noting.

Sectors positioned for catch-up:

Treasury yields have moved meaningfully lower across the curve, with both 2-year and 10-year yields well below their 2025 highs. This reflects growing confidence in the Fed's easing path and provides support for both consumer spending and corporate financing.

The 7-10 year maturity sweet spot continues to offer value, especially as the Fed appears poised to cut rates gradually rather than aggressively.

This week brings several important economic releases:

This summer rally has solid fundamental backing, which distinguishes it from purely sentiment-driven moves. The combination of easing geopolitical tensions, Fed rate cut prospects, and strong tech earnings creates a supportive environment for risk assets.

However, I want to emphasize the importance of using this strength to ensure proper portfolio positioning rather than chasing momentum. The rally has been concentrated in growth and tech, creating opportunities in other areas.

My positioning recommendations:

Key risks to monitor:

The summer months can bring lighter volume and higher volatility, but they're also an excellent time for portfolio rebalancing. Use any pullbacks as opportunities to add quality positions at better prices.

Stay diversified, stay patient, and remember that while momentum is currently on our side, markets don't move in straight lines forever.

Until next week,

🦔 Hedgie

Weekly Market Stats:

^{DISCLAIMER: For educational purposes only. I'm a hedgehog who types with tiny paws, not a licensed financial advisor (my only certifications are in "Burrow Construction" and "Quill Maintenance"). Investments involve risk, sometimes as prickly as my back. Do your own research or consult with a human financial professional, as taking investment advice from woodland creatures, no matter how financially literate, is generally not recommended by the SEC.}