Daily market snapshot

• Stocks close lower on rising Middle East tensions – U.S. equity markets traded lower on Tuesday, with geopolitical tensions back in focus amid the rising possibility of U.S. involvement in the Israel-Iran conflict.* The ramp-up in geopolitical tension fed through markets via higher oil prices, with crude oil up by roughly 4% on Tuesday, while U.S. equity markets were broadly lower.* Additionally, U.S. bond yields declined, while the DXY U.S. dollar index finished higher, reflecting flight-to-safety positioning in markets amid the geopolitical tension. As we mentioned in last week's Weekly Market Wrap, while the human element of geopolitical conflicts should not be dismissed, historically, they've had limited lasting impact on market performance. On the economic front, headline retail sales were below expectations for May, while control-group retail sales expanded at a healthy 0.4% clip, matching expectations.* Overseas, Asian markets were mixed overnight after the Bank of Japan left its policy rate unchanged at 0.5%, while European markets closed mostly lower.* 
   
• Consumer check-in – Consumer-spending trends were in focus on Tuesday, with retail sales for May printing below expectations. Headline retail sales fell by 0.9% in May, below expectations for a 0.7% decline, driven by softness in spending on building materials and motor vehicles, with the latter likely reflecting some give-back after motor-vehicle sales surged in March as consumers looked to front-run tariffs.* In addition to the lower-than-expected May reading, retail-sales growth in April was revised down from a 0.1% gain to a 0.1% decline.* In our view, the silver lining to the May data is that control-group retail sales, which excludes spending on more volatile categories such as gasoline stations, motor vehicles and building materials, fared better, rising by 0.4% for the month, in line with expectations.* Additionally, spending on discretionary categories, such as furniture and clothing, expanded at healthy clips in May*, signaling a willingness to spend from households. In our view, healthy household balance sheets and labor-market conditions should help support consumer spending and economic growth throughout 2025. 
   
• Fed meeting on the horizon – Today marks the beginning of the FOMC's June meeting, with an interest-rate decision and press conference with Fed Chair Jerome Powell scheduled for tomorrow afternoon. Expectations are for the Fed to hold its policy rate steady on Wednesday at 4.25% - 4.5%.* In addition to the decision on interest rates, Wednesday's meeting will also provide an updated set of economic projections, with investors likely watching to see whether expectations for rate-cuts have changed since the March meeting, which signaled two quarter-point cuts from current levels in 2025.** With inflation surprising to the downside in recent months and labor-market conditions showing signs of cooling, we expect the Fed to continue easing monetary policy later this year. Our base-case scenario remains that the Fed will cut interest rates one to two times in the second half of 2025, which should help provide moderate support to economic growth through lower borrowing costs, in our view.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **March FOMC Summary of Economic Projections} 
 

• Equity markets stabilize on Monday – U.S. equity markets traded higher on Monday, with markets stabilizing after a volatile trading session on Friday that saw the S&P 500 decline by over 1% and oil spike by more than 7%, following escalating geopolitical tension between Israel and Iran. While the human element of the conflict should not be dismissed, markets stabilized on Monday, with reports suggesting that there has been limited disruption thus far to the global energy supply chain.* Growth segments of the market were among the top performers, with the technology, consumer discretionary and communication services sectors of the S&P 500 all gaining over 1%.* Bond yields closed slightly higher, with the 10-year Treasury yield finishing around 4.46%.* 
   
• Consumer-spending trends and Fed decision in focus this week – Household spending and monetary policy will be front and center for investors this week, with retail sales for May out tomorrow and the June FOMC meeting concluding on Wednesday. On the consumer side, expectations are for headline retail sales to post a modest decline in May, while control-group sales, which exclude spending on more volatile categories, such as building materials, gasoline stations and motor vehicles, are expected to post a 0.2% gain.* Consumer spending has continued to expand in 2025, albeit at a slower rate than in previous years, with real personal consumption expenditure growing by 1.2% annualized in the first quarter.* We expect healthy labor-market conditions and household balance sheets to help support consumer spending throughout 2025. On the monetary-policy side, expectations are for the Fed to hold its policy rate steady on Wednesday.* In addition to the decision on interest rates, Wednesday's meeting will also provide an updated set of economic projections, with investors likely watching to see whether expectations for rate-cuts have changed since the March meeting, which signaled two quarter-point cuts from current levels in 2025.** Our base-case scenario remains that the Fed will cut interest rates one to two times in the second half of 2025, which should help provide moderate support to economic growth through lower borrowing costs, in our view. 
   
• Performance check-in – While 2025 has had its fair share of volatile markets, most asset classes are higher as we near the halfway point for the year. Despite falling by 19% from February 19 to April 8, the S&P 500 has gained just over 2% including dividends in 2025.* At a sector level, value-style sectors, such as industrials and utilities, have been among the top performers, each higher by over 8%, while growth sectors, such as technology and consumer discretionary, have been among the laggards this year.* Looking outside the U.S., equity-market performance has been strong, with international developed large-cap stocks higher by nearly 18% and emerging-market stocks up by roughly 12%.* In our view, fiscal stimulus measures in the eurozone have helped support sentiment in international developed large-cap stocks, while strong performance in Chinese technology companies has helped provide support to emerging-market stocks*. Additionally, weakness in the U.S. dollar has helped provide a meaningful boost to international performance in 2025. Despite recent underperformance, we believe opportunities remain most attractive in U.S. equities relative to international over a one- to three-year time horizon, and we recommend investors favor U.S. large- and mid-cap stocks over developed international stocks.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **March FOMC Summary of Economic Projections
International developed large-cap stocks represented by MSCI EAFE. Total return in USD. 
Emerging-market stocks represented by MSCI EM. Total return in USD.}

• Markets react to Israel's strikes against Iran - Escalating tensions in the Middle East drove a risk-off sentiment today, with the S&P 500 down 1.1% and the Dow down 1.8%. Overnight, Israel targeted Iran's nuclear-program sites and military capabilities, and Iran retaliated with drone and missile strikes, sending oil prices 8% higher*. The heightened geopolitical risks in the region are triggering fears over potential supply disruptions, and because of that, investors appear to be gravitating toward safe-haven assets, like the U.S. dollar and gold, with the latter up 1.5%*. U.S. Treasuries were not part of that flight to safety, as the 10-year yield rose modestly to 4.4%, potentially reflecting inflation concerns*. All sectors were lower except for energy*. Elsewhere, European and Asian markets were also broadly lower, but the declines were contained, and major indexes are still up year-to-date*.
   

• Stocks have a long history of overcoming geopolitical shocks - Israel's series of airstrikes and Iran's retaliation bring geopolitical risks back to the forefront for investors. A widespread conflict could result in potential supply disruptions in the energy markets, though that is not the case thus far. Nonetheless, investors appear to be adding a risk premium to oil prices, which posted their biggest weekly gain since 2022*. The flight-to-safety and equity market pullback shouldn't be dismissed but require perspective.

  
   

  Even with today's spike, at around $74, oil is 5% below last year's level and in the middle of its three-year range*. As shown in the table below, past disruptions have resulted in short-term market weakness, but they have not lasted long or triggered a widespread market downturn. Historically, the knee-jerk reaction is for stocks to decline the day of the geopolitical event and for performance to be lackluster over the following week, as investors have a natural aversion to uncertainty. But the impact on returns usually proves temporary, as equities were higher in most cases six months and one year later.

  
   

  The upshot is that history suggests geopolitical risks and the associated shock in confidence tend to be short-lived as markets gravitate toward the more sustainable drivers for returns. From a fundamental perspective, structural changes in the U.S. economy have reduced the risks of an oil-driven recession. The U.S. has become a net exporter of petroleum products for several years now, and spending on energy as a percent of GDP has declined over time due to efficiency gains and the shift from manufacturing toward services*. 
   

• Volatility may persist in the summer, but fundamentals remain supportive - From geopolitical risks and potential trade developments to evolving fed policy and fiscal debates, the months ahead may test the market's recent momentum. However, we don't think the 20% rally since the April 8 lows is built on sand. Trade tensions have eased, policy focus has shifted toward tax cuts, and economic data remain resilient. Also, corporate profits continue to grow at a healthy pace. We think markets are appropriately beginning to look ahead, setting their eyes on the possibility of more stimulative fiscal and monetary policies in 2026. Next week the Fed is expected to keep rates unchanged and remain in wait-and-see mode, supported by the underlying strength in the economy and trade uncertainty. However, policymakers will update their economic and interest-rate projections, which are likely to show a path to gradually cut rates toward neutral over the next 24 months, including one or two rate cuts this year, in our view.

Angelo Kourkafas, CFA
Investment Strategist

^*FactSet 

• Stocks rise on new jobless claims and inflation data – Equity markets closed higher on Thursday, as jobless claims held steady and producer price inflation was slightly below expectations. Utility and technology stocks posted the largest gains, while the communication and consumer discretionary sectors were laggards. Bond yields extended their pullback over the past week, with the 10-year U.S. Treasury yield at 4.36%. Today's auction for 30-year U.S. Treasury bonds was met with strong demand, as total bids were about 243% of those accepted, known as the bid-to-cover ratio.** In international markets, Asia finished mostly lower, as investors assessed the reported agreement between the U.S. and China to relax export controls on technology and rare-earth minerals. Europe also declined, led by the leisure and travel sector to the downside following the Air India plane crash this morning*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil was little changed as markets monitored tensions between Israel and Iran*.
   
• Jobless claims hold steady – Initial jobless claims were roughly unchanged at 248,000 this past week, slightly above estimates pointing to 244,000*. Insured unemployment, which measures the total number of people receiving benefits, rose to 1.95 million from 1.9 million the prior week*. The broader trend for jobless claims has been higher this year, indicating the labor market remains healthy but is cooling from a position of strength, in our view. The unemployment rate remains low at 4.2%, and 7.4 million job openings still exceed unemployment of 7.2 million*. Wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy, in our view.
   
• Producer price inflation lower than expected – The producer price index (PPI) rose 0.1% in May, below estimates for a 0.2% increase.* On an annual basis, PPI inflation rose to 2.6%, as expected, up from 2.5% the prior month.* Core PPI inflation, which excludes more-volatile food and energy prices, dropped to 3.0% on a year-over-year basis, from 3.2% in April, narrowing the gap with the headline figure.* We believe these readings, though likely not meaningfully impacted by tariffs, indicate that inflation continues to moderate. We expect tariffs to put some upward pressure on inflation, as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view.

Brian Therien, CFA
Investment Strategy

^{*FactSet **U.S. Department of the Treasury}

• Stocks fall despite soft inflation data – U.S. equity markets closed lower on Wednesday, despite a weaker-than-expected inflation reading for May.* From a leadership perspective, most sectors of the S&P 500 finished the day flat-to-lower with the exception of energy, as rising geopolitical tensions between the U.S. and Iran weighed on sentiment and sent oil prices higher by more than 4% today.* Overseas, markets in Asia were higher overnight, boosted by progress in U.S. – China trade talks, while markets in Europe closed mostly lower.* Bond yields traded lower following the softer-than-expected inflation reading, particularly at the short end of the curve, with the 10-year Treasury yield finishing the day around 4.42% and the 2-year yield falling to around 3.94%.* 
   
• May inflation data softer than expected – Consumer price index (CPI) inflation was lower than expected in May, with headline CPI rising by 0.1% for the month and 2.4% on an annual basis, both below expectations.* Core CPI, which excludes food and energy, was also softer than expected, rising by 0.1% for the month and 2.8% on an annual basis.* Looking into the drivers, core services inflation slowed to a 0.2% monthly gain and rose by 3.6% on an annual basis, matching the April reading for the lowest annual gain since November 2021.* Notably, the May report showed little evidence of tariffs being passed on to consumers in the form of higher prices, with core goods CPI flat for the month and rising by a muted 0.3% on an annual basis.* While the recent downtrend in inflation has been encouraging, we believe tariffs could put upward pressure on prices in the months ahead. However, with trade tensions de-escalating in recent weeks, businesses could be choosing to absorb higher near-term costs related to tariffs, with the hope that tariff rates will trend lower over time. Under this environment, we expect the Federal Reserve to continue easing monetary policy, but at a measured pace, perhaps delivering one to two interest-rate cuts in the back half of the year.
   
• U.S. – China trade talks progress – After two days of negotiations in London, U.S. and Chinese policymakers have reached an agreement in principle to bilaterally ease trade restrictions.* While details around the agreed-upon framework remain vague, reports suggest the focus is on the U.S. reducing export controls of technology goods to China in exchange for access to rare-earth minerals.* The official framework will still require approval from U.S. President Donald Trump and Chinese President Xi Jinping before implementation; however, initial reports suggest the U.S. tariff rate on imports from China will be 55%, which is composed of the 30% tariff imposed earlier this year and the existing 25% duties.* While the agreement appears to be focused more on specific products, it fits with the broader trend of de-escalating trade tensions over recent weeks, which has provided a boost to equity markets, with the S&P 500 now roughly 2% off its February 19 all-time high.* In our view, we're likely past peak trade-policy uncertainty, but volatility could resurface over the coming weeks, particularly as we approach the expiration of the 90-day pause from the April 2 tariff announcement on July 9. However, with peak uncertainty likely behind us, and economic data proving resilient over recent weeks, we believe opportunities remain attractive in equity markets, and we recommend investors consider overweighting equity relative to fixed income, with a focus on U.S. stocks over international. To view our full suite of opportunistic portfolio guidance, checkout our Monthly Portfolio Brief.

Brock Weimer, CFA
Investment Strategy

^*FactSet