Global Stocks Reach Record Highs on Trade Optimism and Weakening Dollar

Global equities surged to new intraday record highs on Monday, driven by optimism surrounding U.S. trade negotiations and Canada's strategic decision to pause its controversial digital services tax. The S&P 500 and Nasdaq Composite both closed at all-time highs, with the technology sector leading the gains.

Further bolstering bullish sentiment, the U.S. dollar recorded its worst first-half performance in over 50 years, enhancing the appeal of global risk assets.

Trade Diplomacy: Canada and U.S. Reset Talks

Canadian Prime Minister Mark Carney and U.S. President Donald Trump have agreed to extend trade negotiations until July 21, aiming to finalize a comprehensive bilateral agreement. This extension comes after Trump's initial July 9 deadline for reciprocal tariffs. Sources suggest that most international deals could be concluded before Labor Day (September 1).

Key developments in trade diplomacy include:

• Canada's withdrawal of its digital services tax just hours before its scheduled enforcement, signaling a gesture of goodwill.
• A warning from U.S. Treasury Secretary Scott Bessent that, absent progress, the administration might revert to the more aggressive April 2 tariff levels.

Market Performance Snapshot

Monday's rally was largely fueled by renewed investor confidence in trade policy stability, with quarter-end window dressing effects adding to the momentum.

Major Index Moves (July 1 close):

• Dow Jones: +275.50 pts (+0.63%) to 44,094.77
• S&P 500: +31.88 pts (+0.52%) to 6,204.95
• Nasdaq Composite: +96.28 pts (+0.48%) to 20,369.73

Technology stocks led the market with a 1% gain, while the consumer discretionary sector lagged among S&P 500 components.

Dollar Weakens, Labor Data in Focus

The U.S. dollar index experienced a sharp decline, marking its worst first half since the 1970s. This depreciation was primarily due to soft economic data and market expectations of impending rate cuts.

Investors are now closely monitoring upcoming labor market data, culminating in Thursday's nonfarm payrolls report, which is expected to significantly influence near-term Federal Reserve policy decisions.

Fed Outlook: Divided But Dovish

Federal Reserve Chair Jerome Powell has maintained a wait-and-see approach, emphasizing the need for more time to assess the inflationary impact of evolving trade policies.

Notable Federal Reserve officials' perspectives:

• Atlanta Fed President Raphael Bostic still anticipates one rate cut in 2025.
• Chicago Fed's Austan Goolsbee cautioned about a rare stagflation scenario, where both unemployment and inflation could worsen simultaneously.

Conclusion

Markets have entered the second half of 2025 on a highly optimistic note, supported by a weakening dollar, constructive trade diplomacy, and dovish Federal Reserve expectations. However, with critical labor market and inflation data on the horizon, this optimism could face rapid testing. Investors should prepare for heightened volatility and closely monitor central bank commentary as global dynamics continue to evolve.