Insights into the stock market reaching new all-time highs.
It seems unfathomable that following a weekend when the U.S. launched seven B-2 bombers, carrying bunker buster bombs to drop on three key Iranian nuclear facilities, the markets did not flinch. It also did not flinch when Iran launched a ballistic missile attack on the U.S. air base in Qatar, though admittedly the attack was highly telegraphed, and no casualties were reported. The market also remained unmoved even when President Trump announced a ceasefire between Iran and Israel but both sides appeared to violate the agreement shortly after it went into effect.
Key questions remain around the future of the Iranian nuclear program, and how tensions in the Middle East can or will resolve. For investors, it appeared to be enough that Iran chose not to close the Strait of Hormuz, through which flows about 20% of global crude production, or about 20 million barrels per day. Secretary of State Marco Rubio called the potential closure “economic suicide” as Iran’s exports also move through the waterway, but nevertheless Iran has repeatedly threatened to block the passageway. Brent crude, the global oil benchmark, is trading at $66 a barrel, while West Texas Intermediate crude, the U.S. oil benchmark, fell 6% to $65.69 a barrel, levels broadly comparable to the closing prices in the days before Israel launched an unprecedented attack on Iranian nuclear facilities on June 13.
Investors were also not displeased by signs that tariff negotiations are proceeding between the U.S. and China. President Trump said, “We just signed with China yesterday.” He did not provide further details. China said, “Both sides have confirmed further details on the framework.” China has previously said it will deliver rare earth minerals to the U.S. as part of the framework, and the U.S. will respond by lowering previously announced countermeasures. Commerce Secretary Howard Lutnick said that trade agreements with ten key U.S. trading partners are imminent, and Treasury Secretary Scott Bessent said the U.S. could complete the balance of its most important trade talks by Labor Day.
Investors were likewise not flustered by testimony made by the Federal Reserve Chairman Jerome Powell this week before Congress that he continues to favor taking a patient approach to future monetary policy adjustments. In a statement to Congress, Powell said, “For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.” While Powell has continued to emphasize a wait-and-see approach to future rate cuts, his remarks were somewhat counter to comments from Fed Governor Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman who recently expressed the next rate reduction could come as soon as the July 30th Federal Open Market Committee (FOMC) meeting. When asked specifically about the potential for a July cut, Chair Powell said, “If it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates, sooner rather than later, but I wouldn’t want to point to a particular meeting. I don’t think we need to be in any rush because the economy is still strong.”
The economy is still strong, but there are cracks emerging. The final estimate of GDP showed the economy contracted by –0.5% compared with the consensus view and previous estimate of –0.2%. Although, the weakness was related to heavy imports ahead of tariffs. While weekly initial jobless claims fell to 236,000, continuing jobless claims rose to a new three-year high of 1.974 million. The Conference Board’s Consumer Confidence Index fell sharply in June, in a reversal of May, showing most Americans are a bit numb about the rapid policy changes coming out of Washington and are feeling optimistic, or pessimistic, depending on the day.
This morning, inflation data was mostly as expected, with the personal consumption expenditures price index, the Fed’s primary inflation reading, showing the annual inflation rate at 2.3%, and the core rate excluding food and energy price changes at 2.7%. Not getting worse, for now, and still evading the Fed’s target 2% level. Consumer spending saw a dip in May for the first time in four months as Americans shied away from auto dealers after rushing to buy new cars and trucks in April and March. They also spent less on hotels and restaurants.
But even as I write this, the S&P 500 Index just reached a new all-time high, surpassing its February high of 6,144. Continuing to power the market forward are technology and AI-themed stocks like Micron and Nvidia, though Nike is making a big comeback following a tough fiscal fourth quarter and guidance that tariffs would inflict a full billion dollars more in costs for the sneaker giant. However, CEO Elliott Hill’s methodical turnaround plans captured investor enthusiasm, at least for now. Many of you have asked me how can all the bearish narratives—Middle East conflict, tariffs, interest rates on hold, soft economic data—keep getting invalidated by rising markets? Indeed, every chance the market has had to break down has failed. As a long-time investor I would say that these markets are doing what bull markets do best: climb the wall of worry. This is in fact one of the most inspiring parts of being an investor: there is an overlay of belief in the companies in which we invest that progress will continue, innovation will power us forward and leadership will meet the moment, despite the risks that will always surround and challenge us. Of course, balance in your portfolio management and financial plan is key. Because while progress is a sure thing in the long-term, near-term shocks can and will occur. Therefore, as we close out the quarter and look ahead to the second half, we look forward to reviewing your plan and will strive to help you climb over your own personal wall of worries and likewise look toward the future with hope and optimism.