Monthly Market and Economic Update - June 2025

CURRENT MARKET AND ECONOMIC CONDITIONS

• For June, the S&P 500 Index was up 5.09%, while the Bloomberg Barclays US Aggregate Bond Index was up 1.54% and the Bloomberg Barclays Municipal Bond Index was up 0.62%.¹
• During the second quarter, the stock market first fell hard following the announcement of “reciprocal” tariffs in April and then recovered almost as quickly as the announced tariffs were then paused until July. The bond market reacted anxiously to the potential effects on the economy and inflation from the global trade uncertainty.
• The Federal Reserve took no action at the two meetings during the quarter. They are balancing the competing risks of potentially higher inflation with the possibility for slower economic growth.

BOND MARKET

• The Federal Reserve held short-term interest rates at current levels during their most recent meeting in June. As Chairman Jerome Powell stated in his post-meeting press conference: “We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks.” The Fed Fund futures market is still forecasting the next rate reduction in September with another reduction likely in December.²
• Although elevated from the Fed’s target, the inflation numbers have remained stable. The job market is still showing resilience. During his press conference, Chairman Powell echoed this relative stability but also stated: “We believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments.” As Powell recently confirmed, the reason for not lowering rates sooner is the unknown effect that tariffs may have on inflation.
• The budget bill has now passed through Congress. Longer-term bond yields have risen due to concerns regarding the escalation in the US government debt caused by the legislation.
• For bond investors, the recent fall in interest rates has meant a rise in bond values and a positive total return year to date. Also, due to the higher relative bond yields any change in interest rates whether up or down will have less impact to bond values than when the starting yields were much lower a few years ago.

STOCK MARKET

• At the halfway point of the year, the stock market, as measured by the S&P 500 index is up 6.2%. The market is learning to deal with the shifting trade policy updates. Despite the continued uncertainty, the market has pivoted to focus on more typical factors like earnings growth and the direction of interest rates. With relatively stable economic data, the market is finding opportunities for growth.
• International stocks have been the surprising winner of the market so far in 2025. The MSCI EAFE International Index is up over 19% year-to-date. With the build-up of defense spending in Europe and the adjusting trade landscape, investors are finding relative value with upside potential for companies outside the US.¹
• Investors typically shy away from uncertainty, especially when stock prices are elevated. Historically, markets often experience heightened volatility and weaker performance during the first 18 months of a new administration—regardless of which party is in power—as investors adjust to changes in fiscal policy. Expectations for the new administration have included pro-growth initiatives such as deregulation, tax cuts, and stable energy prices and interest rates. However, the early focus on implementing tariffs has sparked market concerns, as these measures may dampen short-term economic growth and contribute to inflationary pressures. If the administration shifts its focus back toward growth-oriented policies, the market could regain its footing. For now, the Federal Reserve adopting a cautious stance, watching for signs of stagflation—slower growth combined with rising inflation. In times of market turbulence, it is important for investors to maintain a long-term perspective and consider using short-term volatility as an opportunity to rebalance portfolios in line with their risk tolerance.

PORTFOLIO MANAGEMENT

• The allocation for each investor should be diversified between growth and safety based on their own tolerance for risk in the short run and their desire for growth in their investments in the long run. Determining the appropriate asset allocation and risk-reward trade-off is the most important decision for investors.  Once determined, staying invested during periods of uncertainty and rebalancing back to the selected risk profile can help investors achieve their long-term goals.     

Please contact your Advisor if you have any questions.