Weekend Update #234
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Geopolitical tensions between Iran and Israel and disappointing economic data led to a volatile week in the stock market. Direct exchanges continued for a second week, with Israel launching aerial strikes on Iranian nuclear and military sites, causing hundreds of casualties. Iran responded with missile and drone barrages toward Israel, resulting in dozens of deaths and injuries, though most were intercepted. Diplomatic efforts in Geneva failed, with Iran demanding an end to Israeli "aggression" before further talks, while the US considers direct involvement within the next two weeks. Oil prices surged to $77/barrel, the highest since January.
U.S. retail sales for May 2025 declined significantly by 0.9% month-over-month, exceeding analyst expectations of -0.6%. This was the second consecutive monthly decrease, suggesting a potential slowdown in consumer spending due to continued uncertainty in the outlook for inflation and the economy.
On Wednesday, the Federal Reserve maintained interest rates at 4.25% to 4.5%, as anticipated. However, Chair Powell warned that new tariffs are "likely to push up prices and weigh on economic activity" over the summer, raising investor caution. Powell reaffirmed a patient, data-dependent approach, stressing the importance of stable inflation expectations and strong economic data for policymaking. Conversely, Fed Governor Waller reiterated his belief that the inflationary impact of tariffs would be short-lived and that the Fed could begin cutting rates as early as the next meeting in July.
Looking ahead, investors will continue to monitor the evolving conflict in the Middle East over the weekend. Next week, the highly anticipated release of the PCE Price Index, the Federal Reserve’s preferred measure for inflation, will also be a key focus.
Friday’s Close (Weekly Performance)
S&P 500 5,967.84 (-0.15%)
Nasdaq 19,447.41 (+0.21%)
Dow Jones 42,206.82 (+0.02%)
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