Despite geopolitical tensions and mixed economic data, both risk assets and fixed income showed resilience, rewarding diversified investors.
Equity Markets: Record Highs and Renewed Optimism
- U.S. Equities surged, with all major indices posting robust gains:
- S&P 500: +5.09%
- Dow Jones Industrial Average: +4.47%
- Nasdaq Composite: +6.64%
- Growth stocks outperformed Value, propelled by strength in the technology sector
- Russell 1000 Growth: +6.38%
- Russell 1000 Value: +3.42%
- Wide sector performance dispersion, as technology benefited from strong earnings and renewed enthusiasm for AI, while consumer staples declined amid weak earnings and tariff related concerns
- S&P 500 Technology: +9.77% (best performing sector)
- S&P 500 Consumer Staples: -1.89% (worst performing sector)
- Global Equities also hit new highs, though regional performance diverged:
- MSCI Emerging Markets: +6.01%
- MSCI EAFE (Developed International): +2.20%
- Developed International remains the performance leader year-to-date despite trailing US markets in June
Fixed Income: Yields Down, Spreads Tighter
- Treasury yields declined across the curve, as market participants grew more confident that the Federal Reserve could begin easing policy later this year.
- Credit spreads (the compensation for credit risk in bonds) narrowed, reflecting risk appetite:
- Investment Grade: -5 bps
- High Yield: -35 bps
- Municipal bonds rebounded strongly after three months of weakness, supported by stabilizing rate expectations and renewed demand.
Currencies & Crypto
- The U.S. Dollar Index declined for a sixth consecutive month, now down over 10% year-to-date, amid tariff and deficit/debt concerns
- Bitcoin rose approximately 3% in June, continuing its steady year-to-date performance.
Macro & Policy Developments
- Geopolitical Risk: A series of targeted Israeli strikes on Iran, followed by U.S. strikes on key nuclear facilities, caused temporary spikes in volatility across equities, Treasuries, and oil. However, markets stabilized quickly after a muted response from Iran and an agreed ceasefire.
- Legislative Progress: The long-debated “Big Beautiful Bill” edged closer to resolution in the Senate by month-end. Key sticking points include Medicaid, SALT deduction, and fiscal implications for the national debt and deficit.
- Federal Reserve: No change to policy in June. The Federal Funds target range remains at 4.25%–4.50%.
- Chair Powell emphasized patience, noting that policy is appropriately positioned to assess further economic data.
- Market expectations for rate cuts by year-end increased, reflecting a potential shift in the monetary policy outlook.
Economic Data: Mixed Signals
- Labor Market:
- May Non-Farm Payrolls rose by 139,000 (above expectations), though April’s numbers were revised down.
- Initial jobless claims declined in June, while continuing claims stayed elevated, hinting at some underlying weakness in labor market dynamics.
- Consumer & Inflation Trends:
- Real consumer spending declined in May, suggesting a more cautious consumer.
- Inflation trends continued downward, with both headline and core metrics showing moderation.