The trade deal buzz wears off, and the Dollar’s muscle memory reasserts

Stock futures are flat, but the glow from Sunday’s EU-U.S. “deal” is already dimming. The S&P 500 may have eked out another closing high, but the implied range on futures has sagged nearly 50 pips from the peak of that post-golf-course euphoria. What we’re seeing now isn’t collapse—it’s digestion. Relief is a trade, not necessarily the short-term trend this week, given the heavy data docket.

And nowhere was that fade more pronounced than in FX, where traders were quickly reminded that the U.S. dollar still commands a hefty 4.30% carry—and that fundamentals have a habit of reasserting themselves once the tariff smoke begins to clear. The 15% blanket levy on EU and Japanese imports may have helped markets sidestep a cliff, but it’s no free pass. With the average effective U.S. tariff rate now sitting at 18.2%—its highest level since 1934, according to the Yale Budget Lab—the barrier to global trade remains significant. The higher tail risk didn’t detonate, but its potential impact on the global economy hasn’t disappeared either.

European assets bore the brunt. The euro and DAX were both pushed lower as reality set in: the U.S. extracted concessions, secured investment pledges, and walked away without retaliation. That’s not a trade deal—it’s a scoreboard.

Wall Street stumbled through most of the Monday session, only to claw its way into the green thanks to some pre-earnings tech optimism. But the message beneath the surface is clear: the deal may have capped immediate downside, but it’s no spark for a new rally leg. Especially not with Treasury now planning to borrow over a trillion in Q3—double its prior estimate.

Meanwhile, the broader tape remains a one-man band—led by the same seven stocks that do all the heavy lifting. Sure, we’re clocking fresh highs on the S&P and Nasdaq, but strip out the Mag 7 and it’s more sideshow than symphony. Since the start of 2023, the cap-weighted S&P has surged 67%. The equal-weight index? Just 32%. That divergence now sits at a 20-year extreme.

This week could answer the key question: Are we at the start of a market broadening—or just tightening the Mag 7 noose? Over 150 S&P companies report, including four of the magnificent giants. Visa, P&G, and Boeing are up first, but the fireworks come later.

If there’s one thing investors, traders, and analysts can agree on—it’s that a market leaning on seven names is a balancing act, not a foundation. It’s thrilling on the ascent, no doubt. But when a handful of megacaps props up the entire structure, any misstep from one becomes a systemic tremor.

This isn’t strength—it’s concentration risk in a tailored suit.

We’ve seen it in action. When Nvidia wobbles, the S&P sways. When Apple or Amazon underwhelm, sentiment doesn’t just shift—it recoils. In this kind of setup, stock picking begins to feel like shadowboxing. If index performance hinges on a handful of names, why dig through the rest of the haystack? The market becomes a monologue, not a dialogue.

But lately, there’s been a flicker—maybe more than that.

Last week, the equal-weighted S&P 500 quietly surged to a fresh high, eclipsing its November peak. It outperformed its cap-weighted cousin for the fourth time in thirteen weeks. Another strong showing this week would mark its first monthly outperformance since March—a subtle, but meaningful sign of underlying participation.

It raises the question: is this a real ignition, or just a few pistons firing early?

Financials, industrials, and even pockets of cyclicals are starting to show signs of life. Outside the U.S., broad-based indices like the FTSE 100 and the DAX are moving toward fresh highs—without relying on Big Tech to drag them there. That’s not just rotation. That’s the market testing whether there’s power beyond the core engines.

Still, let’s be real—earnings will decide whether this turns into a trend or fizzles out. This week, Meta, Microsoft, Apple, and Amazon all step onto the stage. And let’s not kid ourselves—those four alone will steer more flow than the next 150 S&P names combined.

But the tide may be shifting. Forecasts show the contribution of the “Mag 7” to overall earnings growth is slipping—from dominance toward influence. In Q2, the growth gap between them and the broader index is the smallest since early 2023. And by Q3, that spread tightens further.

Some call this a “short-term normalization.” Maybe. But normal is healthier than overconcentration. Because when the market’s heartbeat depends on just a few arteries, any blockage becomes existential.

Others argue these leaders still earn their premium—and that’s fair. The top names are delivering results, not just riding narratives. But even the best engines burn out if they’re the only ones running.

So, here we are. The Mag 7 are still out front, but the rest of the convoy is starting to rev. The question now isn’t whether they lead—it’s whether the rest of the fleet joins the race.

Because real bull markets don’t ride on jets—they move with an armada.

Beyond earnings, the macro plate is full: FOMC and BOJ meetings, inflation prints, jobs data, and tariff diplomacy in Stockholm, where Treasury Secretary Scott Bessent and China’s He Lifeng are angling for a three-month ceasefire. That truce could set the stage for a Trump–Xi handshake later this year—another risk-on carrot for markets to chew.

But for now, the market's in a weird place—where a country raising tariffs on its own consumers is somehow “winning,” and where every trade deal is scored on optics rather than economic impact. It's not a rally built on conviction—it’s built on the idea that nothing’s blown up... yet.

The sugar high is waning. The real work starts now.