Last Week
All was quiet on the Wall Street front, as stocks ended largely unchanged for the holiday-shortened week. There were no surprises from the Federal Reserve’s monetary policy decision, and the uncertainty from the escalating conflict between Israel and Iran kept investors on the sidelines.
On Wednesday, the Fed’s monetary policy committee decided to keep the key policy rate on hold as was widely expected. The Committee’s updated economic projections for 2025 modestly increased unemployment and inflation expectations, with Fed Chair Jerome Powell once again underscoring the uncertainty stemming from tariffs and sticking to a wait-and-see approach. During the news conference, reporters questioned whether the Fed was still actually data dependent, or now focusing policy based on predicting future data. The softening economic data and the tame inflation readings suggest that monetary policy should be less restrictive, so the Fed’s actions answer the question, even if the Chairman does not want to acknowledge the shift.
Israel and Iran exchanged waves of missile attacks. Peace negotiations between European leaders and Iran bore no fruit. President Trump stated that Iran had to unconditionally surrender, giving an outside time limit of two weeks before deciding about direct U.S. military involvement. Leaders in Iran responded that they would never surrender and warned of consequences if the U.S. entered the fighting.
For the week, the S&P 500 slipped -0.2%, the Nasdaq Composite inched +0.2% higher, and the Russell 2000 gained +0.4%. Advancing and declining issues were about even, with the Oil & Gas sector the top performer. The bond market was unchanged, the Dollar bounced off recent lows, and Gold retreated from recent record highs.
On the Chicago Sports Scene, the Cubs continued their winning ways while the White Sox have now lost 9 of their last 10 games to sink deeper into the cellar.
This Week
On Saturday, the U.S. launched a strike against three Iranian nuclear facilities. The strikes change the narrative in the Middle East, with an unknown impact on the global economy and financial markets. Around a fifth of the world’s daily oil supply goes through the Strait of Hormuz, which Iran could potentially close. On the other hand, faced with the potential economic collapse that could lead to a regime change, it is possible (yet unlikely) that Iran’s “Supreme Leader”, Ayatollah Ali Khamenei, might seek an off-ramp. In any event, this geopolitical uncertainty, combined with the ticking clock to the expiration of the tariff pause, leads us to expect a spike in volatility.
On the domestic front, the Bureau of Economic Analysis releases the personal consumption expenditures price index for May. The annual change in the core PCE is the Federal Reserve’s favored inflation gauge, and recent readings have been at the lowest level since March 2021.
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