Stocks rally while the dollar declines

The first half of the year saw the S&P 500 rise 5.5% while the dollar suffered. It fell over 10.5% last month, marking the worst start to the year since 1973.

Anticipating an interest rate cut and trade deals with major partners, coupled with relatively low unemployment, investors are feeling optimistic and this is visible in the stock market.

Wall Street ended a solid quarter on a high as the S&P hit a record, gaining 25% from April lows—its best performance since December 2023.

Institutions are also less worried about inflation. Goldman Sachs cited lower-than-expected inflation from tariffs. 

Corporate earnings are also playing a role
Apple led tech gains, while Oracle surged on a $30 billion cloud deal. US banks jumped after passing the Fed’s stress test, paving the way for shareholder payouts.

Lower-than-expected inflation is also helping US stocks.

However, investors are not feeling positive about the US dollar and long-term government bonds, as they expect a slow economic recovery due to President Donald Trump’s tariffs. Moreover, analysts opine that higher import duties may add to inflation.

Trump’s mega bill is also a cause for concern as it is expected to add $3.3 trillion to the US national debt over the next 10 years, diminishing the appeal of US bonds. Government bonds become less attractive as the value of the USD declines.

As the dollar declines, experts are worried that its appeal as the go-to currency for international transactions would decline.

A weaker dollar would also drive inflation up as consumers would have to pay more for imported items.