Growing investor confidence on US trade deals has sent stocks to their highest levels in more than two months.

Last week, the S&P 500 (^GSPC) rose 5.3% while the Nasdaq Composite (^IXIC) soared 7.2%. The Dow Jones Industrial Average (^DJI) popped about 3.4%. Both the S&P 500 and Nasdaq have now recouped their losses from the initial tariff-driven sell-off in early April and are in positive territory year to date.

Tariff headlines will remain in focus in the coming week, a quiet one for scheduled announcements in markets. Updates on activity in the manufacturing sector and weekly filings for unemployment highlight the light economic calendar.

With the bulk of companies done reporting first quarter earnings, results from Palo Alto Networks (PANW), Target (TGT), Home Depot (HD), and Workday (WDAY) will be in focus.

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Deal or no deal

The top story in markets remains Trump's trade war. News of a 90-day tariff pause with China sent stocks roaring last week and prompted several Wall Street strategists to get more bullish on their outlooks for the S&P.

President Trump said Friday that the US will set tariff rates for its trading partners within the next few weeks. In a note to clients defending his year-end S&P 500 target of 6,500, Fundstrat head of research Tom Lee wrote that if "tariff deals are soon announced, equities can further recover."

But strategists have also noted that most tariffs are just paused, with negotiations for actual deals still ongoing. This leaves a considerable amount of policy uncertainty lingering in markets.

"I do think we still need to be a little bit cautious until we have a more cemented agreement, not just with China but with Europe as well. And that's still on the back burner," Victoria Fernandez, Crossmark Global Investments chief market strategist, told Yahoo Finance.

The Fed's wait

Many economists have argued recession odds significantly decreased over the past week following the latest tariff pause. This has coincided with a shift in the market's expectations for the Federal Reserve this year.

Investor bets on the Fed's next interest rate cut now favor July, a shift from chances favoring June prior to the tariff delay, per the CME FedWatch Tool. Bloomberg data shows markets are now pricing just two 25 basis point interest rate cuts for the full year, down from three seen the week prior.

With limited new data coming in the week ahead, focus will shift to the nine scheduled speeches from Federal Reserve members. But Bank of America US economist Aditya Bhave doesn't believe investors will learn much new about the Fed's wait-and-see approach.

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"We don't expect a major change in tone relative to recent Fedspeak: most speakers will likely emphasize patience, highlighting the uncertainty ahead and the importance of looking at the totality of policies, not just tariffs," Bhave wrote in a note to clients.

Bhave holds an out-of-consensus call for the Fed not to cut interest rates at all in 2025.

"In order to cut, the Fed will need to see clear evidence that either the labor market has deteriorated substantially, or inflation has started to ease with the tariff impact behind us," Bhave wrote. "Neither outcome seems imminent."

For now, Fed rate cuts being pushed back hasn't shaken the market as investors have poured into risk assets amid the more optimistic growth outlook for the US economy.

The Lag 7

After leading the S&P 500 to two consecutive years of over 20% gains, the "Magnificent 7" tech stocks have held back the benchmark index in 2025.

Research from DataTrek co-founder Nicholas Colas published on Friday showed the combination of Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) accounted for allof the S&P 500's decline in the first quarter. In fact, without the Magnificent Seven, the S&P 500 would be up 2% this year, per Colas's work.

Recently, the tides have begun to shift. The Big Tech cohort has accounted for 60% of the S&P 500's gains since the beginning of May, with large rallies from Nvidia, Microsoft, and Tesla leading the charge. Both Tesla and Nvidia are up about 30% or more over the past month, while Microsoft has rallied about 20%.

Goldman Sachs chief US equity strategist David Kostin boosted his year-end S&P 500 target from 5,900 to 6,100 after the China tariff pause and believes another Big Tech rally could be in store after a strong first quarter earnings season for the group.

"We expect investors will be attracted to the secular earnings growth profiles of many AI-exposed equities against a backdrop of modest economic growth, especially in light of relatively undemanding current valuations," Kostin wrote.

Weekly calendar

Monday

Economic data: Leading Index, April (-0.8% expected, -0.7% prior)

Earnings: Trip.com (TCOM)

Tuesday

Economic data: Philadelphia Fed non-manufacturing activity, May (-42.7% prior)

Earnings:  Home Depot (HD), Palo Alto Networks (PANW), Toll Brothers (TOL)

Wednesday

Economic data: MBA Mortgage Applications, May 16 (+1.1% prior)

Earnings: Baidu (BIDU), Canada Goose (GOOS), Snowflake (SNOW), Target (TGT), TJX Companies (TJX), Urban Outfitters (URBN), VF Corporation (VFC), Zoom (ZM)

Thursday

Economic data: Chicago Fed nat activity index, April (-0.03 prior); Initial jobless claims, May 17 (229,000 prior); Continuing claims, May 10 (1.88 million prior); S&P Global US manufacturing PMI, May preliminary (50.2 prior); S&P Global US services PMI, May preliminary (50.8 prior); S&P global US composite PMI (50.6 prior); Existing home sales month-over-month, April (+3.2% expected, -5.9% prior); Kansas City Fed manufacturing activity, May (-4 prior);

Earnings: Advance Auto Parts (AAP), Autodesk (ADSK), BJ's (BJ), Decker's (DECK), Intuit (INTU), Ralph Lauren (RL), Ross Stores (ROST), TD Bank (TD), Workday (WDAY)

Friday

Economic data: New home sales, month-over-month, April (-3.7% expected, +7.4% prior); Building permits, month-over-month, April final

Earnings: No notable earnings.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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