Yet Another Curveball for 2025

By Crest Capital Advisors on June 16, 2025

Dow: (1.32%) to 42,197.79
S&P 500: (0.39%) to 5,976.97
Nasdaq: (0.63%) to 19,406.83
Russell 2000: (1.49%) to 2,100.51
Bitcoin: 105,715
10 Year Yield: 4.40%
Outperformers: Energy 5.73%, Utilities 0.20%
Underperformers: Financials (2.61%), Industrials (1.60%), Consumer Staples (1.14%)

US equities were lower this week, with some moderate weekly gains for the major indices evaporating in Friday’s risk-off session amid the growing Israel-Iran conflict. Trade was once again an important thread in the week’s narrative, although it took a back seat to the Israel-Iran conflict by week’s end.

The bull-bear picture remains muddled given the lack of clarity about the Israel-Iran conflict. The market has a history of looking beyond geopolitics, but the scale of Israel’s attack makes comparisons to previous incidents challenging. Trade headlines this week were also a mixed bag, with some relief on the US-China rapprochement but also notes that bilateral deals could remain difficult to close. But on the flip side, there were positive takes on cooler inflation data, a settling of consumer anxieties, solid demand support for Treasuries, and continued AI optimism.

In short, the 2025 stock markets have been navigating a volatile landscape, with tariffs and geopolitical tensions throwing fresh curveballs at investors. Just as markets were adjusting to President Trump’s latest tariff hikes, Israel’s preemptive strike on Iran sent shockwaves through global equities. Oil prices surged over 10% at one point, fueling inflation concerns, while safe-haven assets like gold and the US dollar rallied. The Dow, S&P 500, and Nasdaq all tumbled over 1% on Friday, pulling the markets lower on the week and reflecting heightened uncertainty. Investors are now weighing the risk of broader conflict disrupting energy flows, adding another layer of complexity to an already fragile economic outlook.

Two Months Off the Lows

This week marked the official 2-month mark after the infamous ‘Liberation Day” announcement, an announcement that we’re all well aware went over like a lead balloon. Now, after rallying significantly from the post-tariff April lows, we note the move is actually among the strongest 40-day returns historically.

The S&P 500 now seems poised to continue higher, as historical precedent would suggest. The table below shows the ‘Top 10’ 40-day advances (with this year’s highlighted as the 7th best) and the outlook over the next 20 -250 days for prior periods. The average return on a +250 day look forward from prior, powerful, 40-day advances shows an average return of 18.9%. There was one outlier in 2021.

Source: Strategas Research Partners (June 2025)

Unconventional CPI

Confirmation bias is an awesome force in the universe. Will the Fed have the clarity to look at all these alternate indices, many of which they themselves create, and see that the tariffs — which have already doubled year-to-date customs tax collections versus last year — have had no discernible effect at all on the overall price level? We’ll find out just how blind they are — or not — at next week’s critical Fed Meeting. The next 3-5% move in markets may just depend upon it.

This week we learned the May Core CPI (Ex-Food/Energy) rose 0.13% cooler than consensus of 0.3% with an annualized rate of 2.79%, below the 2.9% forecast, AND near the lowest levels since March 2021…more than 4 years ago! The headline CPI rose 0.08% below consensus for 0.2% with an annualized headline rate of 2.35%, once again below the 2.5% forecast. Core goods, the biggest focus given potential tariff impact, came in unchanged month-over-month (That’s 0.0% in inflation terms!), including declines in new and used vehicles, and apparel. Shelter remains the biggest upside pressure, rising 0.3% for the month, though the Owner’s Equivalent Rent (OER) ticked down 0.1 %.

In short, it was a “big, beautiful beat” for headline and core inflation. Can the Fed stop hallucinating inflation now? If tariffs were making inflation, then why did the goods sector show outright deflation for the month? Headline and core, ex-OER, are both below 2% year-on-year now, and the Fed’s target for them is 2.5%. A sharp deceleration in May for all categories except food. More than all the months’ reported (and low) inflation was due to just 5 items out of almost 200. Going into next week’s meeting, the Fed can and should be more relaxed about inflation. But the reality is that all year, the Fed has been targeting the stock market, tick by tick. To the extent that this good news keeps buoying stocks, the Fed will become more and more convinced — and rightly so — that rates are pretty much at neutral already.

Mag 7 Dispersion

The Mag 7 names (Nvidia, Microsoft, Amazon, Google, Meta, Apple, and Tesla) stepped up with nearly 27% earnings-per-share growth this quarter vs just 9.4% for the other 493 names in the S&P 500 index. Nevertheless, the stock price movements of the Mag-7 names have been far from consistent. Amazon, Google, Apple, and Tesla remain far below their respective YTD highs, whereas Microsoft (the only name to trade to a new high), Meta, and Nvidia are leading the group. Take a look at the chart below.

Economic Funnies

Crazy Stat(s) of the Week

On Friday of this week, we found out the University of Michigan Consumer Sentiment Survey improved modestly, and year ahead inflation expectations from this cohort fell to 5.1% from 6.6%. Yet even with this improvement, the spread between this survey and the official NY Fed Survey remains laughably wide. Take a look at the chart below which illustrates how politically partisan this dataset has become (Democrat respondents continue to see massive inflation at 10.1% on the year-ahead basis even with the headline decline to 5.1%).

Source: Macrobond, University of Michigan, Fed Reserve Bank of NY (June 2025)

Measures of M&A activity are approaching the lowest levels in decades, driven by the double whammy of high uncertainty for business planning and interest rates staying higher for longer.

Source: Apollo Chief Economist (June 2025)

Quote of the Week

“The President has been saying this for a while, but it’s even more clear: the refusal by the Fed to cut rates is monetary malpractice.”

– JD Vance

Calendar of Events to Watch for the Week of June 16th

Wednesday’s Fed Meeting will be the key event next week with the earnings calendar very light given the timing in between quarters, combined with the US Markets being closed on Thursday for the Juneteenth Federal Holiday.

On the US Economic calendar, the highlights will come on Tuesday with a look at Retail Sales (extrapolating the health of the US consumer), Export/Import pricing (will we see “inflationary” upticks?), and Industrial Production (a data-set that has been coming in consistently light.

And now, with geo-politics taking center stage on Friday, any developments or escalating actions on the part of Israel and Iran will heavily influence investor risk appetite into next week and beyond.

Monday 6/16– The Empire State Index for June is expected to remain in contraction at -5.5 v. -9.2 last month.

Tuesday 6/17 – US Retail Sales for May are expected to decline by -0.55% at the headline level. The Control Group series is expected to post a modest 0.20% increase, up a tick from last month’s 0.1%. We’ll also get data on the US Export/Import Price Index for May where both series are expected to show a 0.2% increase. Finally, Industrial Production for May is forecast to show a 0.2% increase, up from the 0% rate last month.

Wednesday 6/18 – May Housing Starts are expected to increase by 0.7% month-over-month. The Weekly Claims data will be adjusted to release today instead of the usual Thursday due to the Federal Holiday.

Thursday 6/19 – US Markets (And Crest Capital’s offices) will be closed on Thursday of this week in observance of the Juneteenth holiday.

Friday 6/20 – The US Leading Indicators for May are expected to buck the trend of negative prints for this data-set over the past few years and show a modest 0.7% increase, up from last month’s -1.0% decline. The Philly Fed Index for June is expected to remain in contraction at -4.5.

Source: MarketWatch / FactSet (June 2025)

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