Monthly update: Fed holds line, inflation & tariffs, consumer fatigue

Major U.S. Stock Indexes

 

June Market Recap: A Shift in Sentiment

I hope this message finds you well! June brought a wave of optimism to the markets, with shifting inflation expectations and evolving trade policies shaping the financial landscape. Amid these changes, the Federal Reserve is treading carefully. Here’s a quick look at the highlights from last month.

 

📈 U.S. Stock Market Performance

Markets rallied in June, with major indexes reaching new highs as investors embraced a more risk-on approach:

• S&P 500: +4.96%
• Nasdaq 100: +6.27%
• Dow Jones Industrial Average: +4.32%

Both the S&P 500 and Nasdaq 100 closed the month in record territory, reflecting renewed investor confidence.

 

🏦 Federal Reserve: Staying Patient

The Fed continues to take a cautious stance. Chair Jerome Powell emphasized a wait-and-see approach, telling Congress,

“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

Markets are currently pricing in only a 23% chance of a rate cut in July. However, if economic conditions—especially in the labor market—deteriorate, that could change. While unemployment remains low at 4.2%, job growth indicators are softening, and ongoing jobless claims are at their highest since November 2021.

 

💸 Inflation and Tariffs: A Closer Look

Inflation ticked up in May:

• Overall prices  rose 2.3% year-over-year (up from 2.1% in April).
• Core inflation  (excluding food and energy) increased 2.7% (up from 2.5%).

Tariffs are expected to increase prices. As Fed Chair Powell noted, someone along the supply chain—whether manufacturers, retailers, or consumers—will bear the cost.

Some early signs:

• Walmart  expects higher prices during back-to-school shopping.
• Nike  anticipates $1 billion in tariff-related costs this year and plans “surgical” price increases this fall.

 

🛍️ Consumer Behavior: Signs of Fatigue?

There are hints that consumers may be pulling back:

• Gas sales and auto purchases have declined.
• Excluding autos, retail sales fell 0.3%, though they rose 0.4% when excluding the most volatile categories.

The University of Michigan’s consumer sentiment index rose in June—its first increase in six months—but still reflects concerns about inflation and a potential slowdown. Meanwhile, revised GDP data showed Q1 consumer spending growth was just 0.5%, down from an earlier estimate of 1.2%.

 

👷 Labor Market Pressures

The job market is showing signs of strain:

• Ongoing unemployment claims are at a 3.5-year high.
• The Conference Board’s Consumer Confidence Index dropped to 93.0 in June.
• The Present Situation Index, which gauges current business and labor conditions, also declined.

Despite these pressures, many consumers still feel moderately positive about job prospects.

 

🔮 Looking Ahead

The market’s rebound from April lows is encouraging, but uncertainties remain. One key concern is the potential impact of Middle East tensions on oil supplies, especially from the Gulf region, which holds a significant share of global reserves and production.

In times like these, it’s important to stay focused on your long-term goals. Market volatility is normal and often reflects risks before they fully materialize. A thoughtful, strategic approach to investing tends to outperform short-term reactions.