Weekly Market Commentary

June 23, 2025

The Markets

Investors are taking it all in stride.

As Israel and Iran exchanged missile strikes last week, stock markets in the United States remained relatively steady, reported Michael Msika and Phil Serafino of Bloomberg.

“On June 13th, as the bombs began to fly, S&P 500 futures fell by 1.6 [percent]. But as the hours passed, the stock market steadily climbed. The index has now recovered to around 6,000, a hair’s breadth from an all-time high…consider the long list of recent events that at first seemed to have epoch-making potential, only to fizzle out,” reported The Economist.

This is often the case with geopolitical events.

Any time conflict flares, it can be difficult to comprehend the potentially world-changing outcomes, much less factor them into stock prices. As a result, many investors ignore geopolitical upheaval.

The Economist emphasized this point when it reported that the Israel-Iran conflict joined a “long list of recent events that at first seemed to have epoch-making potential, only to fizzle out…Examples include China’s anti-lockdown protests, the Wagner Group’s rebellion in Russia and skirmishes between India and Pakistan”.  

So, what has investors’ attention?

One answer is economic growth and the performance of publicly traded companies. “The momentum of markets can be relentless. Shares tend to grind higher over time as consumers spend, entrepreneurs innovate and companies grow. Earnings per share for American firms have risen by 250 [percent] or so over the past 15 years. For any event to have a meaningful impact, at least for longer than a few days, it must harm such dynamism.”

Last week, Federal Reserve Chair Jerome Powell confirmed the U.S. economy remains strong. During a press conference, he stated, “Despite elevated uncertainty, the economy is in a solid position. The unemployment rate remains low. The labor market is at or near maximum employment. Inflation has come down a great deal, but it has been running somewhat above our two percent longer-run objective.”

In 2025, diversification has been a sound strategy for managing the uncertainty of geopolitics, reported David Rovella of Bloomberg.

“Amid the geopolitical and economic maelstroms of 2025, diversified investors may end up remembering the first six months for something altogether less dangerous or dramatic…the year has still managed to see the strongest stretch of synchronized market gains in years. Rather than spelling a slow-motion disaster for bulls, months of whiplash across equities, fixed income and commodities have rewarded strategic indifference.”

Major U.S. stock indexes finished last week lower. Yields on longer maturities of U.S. Treasuries also moved lower over the week.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

WHAT IS THE FEDERAL RESERVE? The Federal Reserve (Fed) is the central bank of the United States. It is made up of twelve district banks that are supervised by a Board of Governors. Basically, the Fed oversees banks, protects consumers, and keeps our financial system stable.

It’s also responsible for keeping the U.S. economy healthy by making sure:

• People are working (maximizing employment) and
• Price increases are low (stabilizing inflation).

How does the Fed support the economy?

The Federal Reserve’s Open Market Committee (FOMC) meets eight times each year to decide whether – and how – the Fed should influence the economy.

For example, when prices rise rapidly, the FOMC lifts the federal funds rate. As the federal funds rate move higher, banks raise the rates they charge for loans and credit cards, and people begin to spend less. Demand for goods slows, and prices move lower.

When the federal funds rate increases, bond rates perk up, too, which can be challenging for investors who own bonds with lower interest rates. That’s because there is an inverse relationship between bond prices and bond rates. When rates rise the value of bonds with lower rates declines. On the other hand, investors have an opportunity to purchase new bonds that deliver a higher level of income, explained Nick Lioudis on Investopedia.

In contrast, if the economy shows signs of weakness – rising unemployment, slowing economic growth, flagging consumer confidence – the FOMC may lower the federal funds rate to stimulate economic growth. When the federal funds rate drops, so do the rates banks charge on loans and credit cards, making it cheaper for people and companies to borrow. Usually, as spending increases, economic growth accelerates.

A falling federal funds rate also means the rates on newly issued bonds will be lower. Typically, that makes bonds with higher rates more valuable.

The June FOMC meeting

Last week, the FOMC met and left the federal funds rate unchanged. The decision had little effect on markets because investors didn’t expect the Fed to change rates. What interested investors was the Fed’s outlook for 2025, reported Jeff Cox of CNBC.

The Fed’s Summary of Economic Projections showed that FOMC members expect employment to remain relatively steady, inflation to rise, and economic growth to slow. In addition, collectively FOMC members expect two rate cuts by the end of the year.

WEEKLY FOCUS – THINK ABOUT IT

“Because financially capable consumers ultimately contribute to a stable economic and financial system as well as improve their own financial situations, it's clear that the Federal Reserve has a significant stake in financial education.”

– Ben Bernanke, Former Federal Reserve Chair