Stock Market Forecast - Tariff Impact, Soaring Oil Prices, and AI Optimism Collide

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Find out what happening right now and get all the pieces of the puzzle on important data activity before the major news sources break the story and see what are the trends
 

•  02 Jun 2025
 

U.S. stock futures are under pressure this morning, with Nasdaq futures leading the declines. S&P 500 contracts are down 0.55%, and Dow futures are off about 0.4%. This weakness follows a strong rally in May that pushed major indices 8% to 10% above their levels on the day former President Trump first announced new tariffs. Markets have not only fully recovered the 15% drop that followed his statement but have moved sharply higher, driven by bullish sentiment and strong earnings momentum.

Still, the rebound raises questions about whether fundamentals actually support current valuations. Tariffs remain a key headwind, and even if temporary deals are reached, they still pose risks to margins, profitability, and corporate tax exposure. Despite these challenges, optimism around the long-term benefits of artificial intelligence continues to fuel market enthusiasm. Many investors believe AI will unlock new efficiencies and profitability in the years ahead, keeping the broader narrative positive. That sentiment, along with solid earnings from key players, has helped push markets near record territory.

But the rally is starting to look expensive. Valuation metrics like the price-to-earnings ratio suggest U.S. stocks are trading about 15% above historical averages. This kind of premium implies a market priced for perfection, leaving little room for error. The current rally is built more on hope and expectations than concrete improvements in global trade or macro conditions. Investors would be wise to remain cautious.

Overseas, Asian markets are slipping as tensions between the U.S. and China resurface. Former President Trump accused China of continuing to exploit low tariffs and announced that he is doubling the steel tariff to 50%. Hong Kong’s Hang Seng dropped 1.8% after an early fall of 2.3%. Japan’s Nikkei 225 is down 1.4%, and South Korea’s Kospi slipped 0.4%. Adding to the concerns, China’s factory activity contracted in May, though less severely than in April. China’s markets are closed today due to a public holiday.

Oil prices are climbing, with WTI crude up $1.60 to $62.40 and Brent rising $1.41 to $64.20. OPEC+ has announced a modest increase in output beginning in July its third consecutive monthly hike, but that hasn’t calmed fears of further supply disruptions. Renewed geopolitical tensions are also playing a role.

Russia has escalated its conflict with Ukraine just ahead of peace talks in Istanbul. Russia launched drone and missile strikes overnight, while Ukraine responded with a major drone attack reportedly destroying over 40 Russian aircraft. The flare-up has rekindled concerns over energy supply stability and could further roil markets if tensions continue to rise.

Overall, while markets have been resilient, today’s moves reflect the fragility beneath the surface. Rising tariffs, geopolitical unrest, and rich valuations are real risks that investors can’t afford to ignore.