The 500 is brushing against its old highs from February, climbing back up after months of tension. But even with that comeback, nothing’s changed about the threats still hanging over the market.

The White House, led by Donald Trump, has until July 9 to decide whether to keep some tariffs on hold or let them hit again. That decision, which will affect billions in imports, is one of several risks that could break the market’s momentum in the second half of the year.

The recovery has happened despite inflation concerns, economic uncertainty, global conflict, and unstable policy. But that doesn’t mean these threats are behind us.

TIAA Wealth Management said in its midyear report that Trump’s trade policy could still shift “frequently,” warning about the “elevated uncertainty” surrounding whether new tariffs will be added or the old ones will be enforced again.

They pointed out that even a few product-specific tariffs could push the total tariff rate over 10% of imports. They also noted Trump has enough legal power to bring back tariffs through other channels, and that court rulings, including possibly the Supreme Court, may not stop him. The real danger, they added, is that the damage to companies and consumers might not have even started showing up fully yet.

Powell links tariffs to inflation risk

Inflation is directly tied to all this. Jerome Powell, Chair of the Federal Reserve, testified to Congress this week, saying the central bank is closely monitoring how tariffs could lead to price increases. “The effects of tariffs will depend, among other things, on their ultimate level,” Powell said. He wasn’t guessing. He was warning.

Another major factor for inflation is oil. The Iran-Israel conflict and rising tension with the US has made oil prices unstable over the last few weeks. That’s not just about supply and demand. If Iran decides to block the Strait of Hormuz, which carries nearly 20% of the world’s crude oil, it could send energy prices through the roof.

This all ties back to the Fed’s interest rate decision. Powell’s team is balancing inflation threats against whether to cut or hold rates. Meanwhile, Congress is debating a tax-and-spending bill. If spending stays high and the Fed keeps rates where they are, both the stock and Treasury markets could face a sell-off. That’s not just a theory. A new Natixis survey, published Wednesday, said bond market turmoil is now the top fear among the firm’s investment managers.

JPMorgan flags recession risk

The economy itself is no longer a solid safety net. The US housing market is already showing weakness. If that spreads to other industries, investors could face a much broader slowdown. JPMorgan’s research team put the odds of a recession at 40% in its latest forecast for the rest of the year.

Dubravko Lakos-Bujas, a strategist at the bank, wrote that if the global outlook gets worse and risk assets start falling, the US could underperform. He explained that the US market is at “the epicenter of the growth shock” due to its current valuations, but also mentioned the large weight of less-cyclical tech stocks could help limit losses. That’s not comfort. That’s just math.

Despite all this, Wall Street’s still hoping things don’t blow up. As long as nothing gets worse, the 500 might stay up. But that’s a big if. One mistake, one escalation, and the whole thing unravels. Investors have taken positions assuming only moderate outcomes. The risk is if something completely unplanned throws everything off.

Tavis McCourt, strategist at Raymond James, put it bluntly in a note to clients: “There are only two consensus opinions in the world of equity investors that I speak with. One, the [US dollar] will continue to weaken, the second is yields are going higher. We all know what the pain trade would be, and [it] will be interesting if this weekend’s events pressure this consensus.”

That pain trade? A reversal of both bets. If the dollar strengthens or yields drop, everyone’s on the wrong side. That’s not a crack in the market. That’s a trapdoor.

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