Last Week
Thanks to positive trade developments and tame inflation data, the markets were trending higher through Thursday. Unfortunately, those gains were erased on Friday following a sharp escalation of the conflict between Israel and Iran, with both countries launching missiles, raising concerns of a direct war between the two nations. However, Iran signaled over the weekend a willingness to deescalate tensions and resume nuclear negotiations, lifting markets in early Monday trading.
On Wednesday’s trade front, U.S. President Donald Trump declared that a deal with China was “done subject to final approval” from him and Xi Jinping. The terms include China providing rare earths to the U.S., 55% tariffs on goods from China, and 10% tariffs on U.S. goods. While the headline reads well, there is still a long and winding road to a sustainable trade agreement.
The economic data highlight was the May consumer price index and producer price index, which both came in softer than expected. We think the recent economic data, plus the improved tariffs, give the Fed a window to resume easing interest rates, which would lift the housing market, dividend-paying stocks, and small-cap equities.
The big sell-off on Friday led to weekly losses of 0.4% for the S&P 500, -0.6 % for the Nasdaq Composite, and -1.5 % for the Russell 2000. The Dollar slid over 1% to reach its lowest level since March 2022, while Crude Oil surged over 10%, and Gold jumped 3.5% to a new record high. Declining issues outnumbered advancing issues by a factor of 1.5-1, with Oil & Gas the best-performing sector and Financials the worst.
The song remains the same on the Chicago Sports Scene: The Cubs are in first place, while the White Sox and Sky are in the cellar.
This Week
All eyes will be on the Middle East as the risk of an all-out war could disrupt the energy markets and potentially threaten the global supply chain.
The strength of the economy will be in focus on Tuesday when the Census Bureau reports retail and food services sales for May. Economists are expecting a modest month-over-month decline.
On Wednesday, the FOMC announces its monetary policy decision. Whereas the odds of a rate cut are slim to none (and slim just left town), traders will closely watch Chairman Powell’s news conference for any hints of change in his hawkish tune.
The markets will be closed on Thursday in observance of Juneteenth National Independence Day.
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