3 GOP Presidents, 3 Middle East Wars

Indices

• Dow 42,206, -257 or -0.61%.
• Nasdaq 19,447, -61 or -0.32%.
• S&P 5,967, -37 or -0.22%.
• MSCI EAFE 2575.17, -38.67 or -1.48%.
• USD 10Y 4.375%, -5.7bp or -1.29%.
• WTI Crude $74.04/bbl, +$0.27 or+0.37%.

U.S. Attacks Iran

On Saturday the United States launched an illegal first strike attack against multiple nuclear facilities in Iran, thus joining the Israel - Iran War. This should have markets trading down on Monday morning as investors decide on their risk positioning and the odds of further escalation (at the time of this writing neither crude oil nor Dow Jones futures contracts have opened for trading).

As a reminder, we have been underweight to equities since the Monday following “Liberation Day” in early April. And while we have been whipsawed by the President’s flip-flopping stance on tariffs since, we are still conservatively positioned to weather a market decline should this new development in the Middle Eastcause markets to trade lower.

Fed Warns of Slow Growth and Increasing Inflation

Leaving interest rates unchanged, the Fed released a benign statement this week stating that “uncertainty about the economic outlook has diminished but remains elevated.”However, in his press conference, Fed chair Jerome Powell cited diminished GDP growth expectations of 1.4%, down from 1.7% in March, and 3% inflation (as measured by PCE) vs 2.7% in March. The Fed dot plot chartrevealed that the number of members in favor of zero interest rate cuts in 2025 has doubled since March from four to eight. Two members are in favor of one 25bp cut, nine are still in favor of two 25bp cuts, and two members believe that three 25bp cuts are warranted in 2025.

Light but Weak Data

On the economic front, it was a fairly light week, but of the reports that were published all were weak. Retails sales posted a negative number for the second consecutive month. Both Empire State and Philly Manufacturing Surveys missed consensus estimates badly. Weekly jobless claims continued to print above their four-week moving average of 240k (this week’s report was 245k and last week’s report was revised higher from 248k to 250k). May Leading Economic Indicators (LEI) slipped again to -0.1% and last month's report was revised significantly lower from -1.0% to -1.4%. LEI have now declined -2.7% in the six month period ending May 2025.

The Upcoming Week: June 23 – June 27

It is a heavy week of economic data including the first look at June services and manufacturing surveys, June Consumer Confidence and Consumer Sentiment, May Durable Goods Orders, the second revision of Q1 GDP, and finally May’s Personal Consumption Expenditure (PCE), the Fed’s preferred gauge of inflation.

Earnings continue to trickle in with FedEx (FDX), Micron Technology (MU), and Nike (NKE), highlighting a weak field.