Markets rally despite Musk-Trump rift, but what’s next?

Friday brought some calm in the aftermath of the breakup between Elon Musk and President Donald Trump's bromance, with Wall Street stocks ending the week in the green.

The solid jobs report also helped offset any worries about the trade war and its impact on the real economy.

The market surge comes even as bets show a further delay in Federal Reserve rate cuts to later in the year.

US stocks closed at their highest mark since February, boosting the S&P 500 by about one per cent to 6,000 points.

After Tesla stocks crashed over 14 per cent, wiping out more than $150 billion in market value, the EV maker recovered some ground as dip-buyers engaged significantly and flocked to the stock.

Musk's very public meltdown with Trump on Thursday turned into a more calm and boring Friday, with only a couple of attacking posts on social platforms by the once best buddies.

The US jobs report showed more resilience in the US economy, with the widely expected slowdown still not reflected in the labour market at least.

While there will be a significant impact from the uncertainty surrounding Trump's tariffs, the timing and the depth of the hit are hot topics of debate.

Fed rate cut expectations shift

The Fed on the sidelines has irked the US president, with Trump repeatedly calling for a rate cut and the Fed Chair Jerome Powell's head.

However, within the central bank, about 40 per cent of policymakers now expect to lower rates just once by 25 basis points at best.

That is below the two rate actions, interest rate swap market is betting on, with a 70 per cent probability of one cut coming in September.

While trades show September still is expected to be a live event, bets were for a 90 per cent probability before the release of non-farm payrolls data.

But the other view floating among investors is that any delay in a rate cut will slip the Fed behind the curve on growth, which could force the US central bank to deliver another jumbo rate cut as it did last year.

Investors will eye US consumer price inflation for cues to understand if the Fed's focus on price pressures is the best approach.

Separately, a Bloomberg survey showed Wall Street stocks will put the worst of this year's trade-war turmoil behind them and rally to fresh highs in 2025.

While markets have rallied in recent times, the risk of a severe pullback remains real.