Fixed Income & Equities Markets Week in Review

The major domestic stock indices delivered mixed performance this week, amidst some choppy trading. Markets were closed on Thursday, in observance of Juneteenth National Independence Day. Investors focused on Middle East tensions and the Federal Reserve’s (Fed) latest meeting.

At the beginning of the week, stocks rebounded from last Friday’s sell-off, fueled by cooling worries about the Israel-Iran conflict. Although there was much rhetoric over the weekend, the conflict did not disrupt crude production and there was no blockage of the Strait of Hormuz. But tensions moved higher again during the week as communication from the White House turned hawkish. President Trump indicated that he was not in a mood to negotiate, that “patience is wearing thin,” and after he called for an “unconditional surrender.” Iran pushed back by stating that it will not surrender and warning the US that it will “undoubtedly be met with irreparable damage if it joins the conflict.” The Trump Administration faces a crucial decision about whether to pursue the diplomacy angle or escalate the conflict by providing American resources in support of Israel’s effort to destroy key Iranian nuclear facilities.

Investors were eager to hear the latest Fed communication. After the conclusion of its Federal Open Market Committee (FOMC) meeting on Wednesday, the central bank left rates unchanged at 4.25%-4.50%, as expected. The biggest takeaways were that the Fed continued to stress the need for patience and additional data given the uncertainty around the impact that tariffs may have on inflation. Fed Chair Powell said in his post meeting comments that the Fed expects a meaningful amount of inflation over the coming months and that projections have moved more toward slower growth and higher inflation. This statement was consistent with the Fed’s reduction in its 2025 GDP estimate (to 1.4% from 1.7%) and its increase in inflation expectations (to 3.0% from 2.7%) during the meeting. The Fed remains “data dependent” and patient about any future changes to interest rates. Additionally, there had been much speculation about the updated message regarding future potential rate cuts (i.e.; the “dot plot”). The median dot still suggested that there could be two 0.25% rate cuts in 2025.

Next week, there will be some earnings reports from “off-earnings-season” companies and the release of May PCE data (the Fed’s preferred measure of inflation). Beyond that, the market is looking toward 2nd quarter earnings season (which will start in mid-July), updates on the reconciliation bill’s progress in the Senate, and further progress on tariff negotiations ahead of the July 9th deadline on reciprocal tariffs. Stock indices have staged a huge rally since the April 8th low: Dow Jones Industrial Average (Dow ) +12.5%, S&P 500 +20.4%, Nasdaq Composite +28.2%, Russell Mid Cap +19.9%, and Russell 2000 +20.3%. The indices are almost back to February 19th highs. The market is searching for catalysts to push levels higher, amidst a surge in valuation (the forward price/earnings (P/E) ratio has risen from 19.5X in early April to its current 21.6X).

As of June 19, 2025