Will rising geopolitical risks and Trump's tariff hike derail the US stock market rally?
US stock futures slid lower to start the week amid escalating geopolitical tensions with Iran and Russia, and as President Trump announced higher steel and aluminium tariffs. Investors now await key economic data releases including the closely-watched non-farm payrolls report on Friday.
US equity markets fall amid geopolitical risks and tariff hikes
US stock markets started the week on the back foot amid rising geopolitical tensions and tariff announcements.
US stock markets bounced back on Friday from early losses after President Trump suggested China had violated the trade agreement. Despite Friday's wobble, US equity markets closed out the month of May with impressive gains, led by the US Tech 100 (Nasdaq 100) which surged 9.04%, marking its best month since the Federal Reserve's dovish pivot in November 2023.
US equity futures are trading about 0.30% lower this morning following several developments over the weekend. Central to concerns is an IAEA report stating that Iran produced nearly 300 pounds of uranium enriched to 60% since February, a 50% increase, bringing its total stockpile to about 900 pounds. This level is close to the 90% needed for weapons-grade uranium, raising concerns about potential responses from Israel.
Additionally, Ukraine's strike on Russian airfields overnight is likely to provoke an aggressive response from Russia, an escalation coming just before this week's peace talks. Lastly, President Donald Trump announced after markets closed on Friday that tariffs on steel and aluminium imports would increase from 25% to 50%, effective June 4, 2025.
Tariff disputes continue to impact markets
Staying in the sphere of tariffs, last week's US Court of International Trade decision could reduce the US average effective tariff from around 13.5% to below 6% if implemented. However, the administration still has strategies to achieve its desired outcomes, and the average tariff rate is expected to settle around the 15-18% range. One key factor for this is the increasing focus on revenue, given the large deficits associated with Trump's tax bill, currently under Senate review ahead of Trump's July 4 signing deadline.
Non-farm payrolls
Date: Friday, June 6 at 10.30pm AEST
In April, the US economy added 177,000 jobs, beating market expectations of 130,000, while the unemployment rate held steady at 4.2%.
For May, the market anticipates an increase of 130,000 jobs and expects the unemployment rate to remain at 4.2% for the third consecutive month. An unemployment rate of 4.3% or higher would be the first time the unemployment rate has been outside of the 4-4.2% range in twelve months and spark concerns that a downturn is underway in the US labour market.
The US rates market begins the week with an 85% probability of a 25 basis point (bp) rate cut priced in for September and a cumulative 50bp of rate cuts expected by year-end.
US Unemployment rate chart
US Tech 100 technical analysis
Post the US Tech 100's surge higher on the 12th of May, we have been working with the view that the rally in the US Tech 100 from the 21st of April 17,592 low is a Wave III (Elliott Wave) that should soon be followed by a Wave IV pullback.
Last week's pullback from the 21,482 high to the 20,777 low was shallower than expected, which points towards it being part of the Wave III advance from the 17,592 low rather than the Wave IV we were looking for.
As such, we are still likely waiting for the Wave IV pullback, which takes the US Tech 100 back towards the 200-day moving average (MA) 20,500 area, before another leg higher for Wave V.
We continue to highlight that a sustained break below the support provided by the 200-day moving average at 20,365, followed by a sustained break below the medium-term support 19,250/19,150 area, would negate the positive bias and warn of a retest of the April lows.
US Tech 100 daily chart
US 500 technical analysis
Post the US 500's (S&P 500) surge higher on the 12th of May, we have been working with the view that the rally from the 21st of April 5101 low is a Wave III that it should soon be followed by a Wave IV pullback.
The US 500's rejection from a three-month high of 5968 high a few weeks ago suggests that the indice has likely already begun its Wave IV pullback, which appears to be missing another leg lower into the 5770/20 support area. We expect this support area to contain weakness before retesting and breaking above the 5968 high (Wave V).
We continue to highlight that a sustained break below the support at 5770/20, followed by a sustained break below the medium-term support 5500/5480, would negate the positive bias and warn of a retest of the April lows.
US 500 daily chart
- Source: TradingView. The figures stated are as of 2 June 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
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