June 30, 2025

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”

Seth Klarman

Happy 4th of July!!!

As we close the second quarter with a dynamic week last week, President Trump had probably the best week of his presidency. But first here’s a recap of last week’s market performance. The S&P 500: Gained 3.41%, reaching a record high of 6,173.07, just shy of its all-time peak of 6,144.15 set on February 19, 2025, the Dow Jones Industrial Average: Rose 3.89%, closing at 43,819.27, up 432.43 points, but still 2.7% below its December 4, 2024, high, the Nasdaq Composite: Advanced 4.36%, ending at 20,273.46, approaching its December 16, 2024, peak of 20,173.89. Internationally, the FTSE 100: Up 0.55%, supported by stable UK inflation at 1.8%, and the MSCI-EAFE: Increased 1.59%, driven by fiscal stimulus in Germany and a softer U.S. dollar. 2-year Treasury paid 3.746% and the 10-year yield was 4.275%, reflecting trade optimism and dovish Fed signals.

So, what happened? Outside of a precision strike decimating the Iranian nuclear program, forcing Iran and Israel to a cease fire, and probable end of the conflict, and progress for resolution of the conflict in GAZA, is Ukraine next? Supreme Court rulings kneecapping the lawfare and rouge liberal judges trying to stop the Trump agenda in the lower courts; plus very good economic numbers on inflation and trade tariff revenue, all contributed to smiles all around the White House. Secretary Bessett indicated most of the “America First” trade deals should be wrapped up by the end of summer, with the exception of the Canadians who refuse to accept the terms forcing the Administration to stop the negotiations,  It should have little effect in the US economy and we shall see if the Canadians reconsider their stance on the island they are putting themselves on.

So, is it no wonder the markets had a field day last week and particularly last Friday? The S&P 500 hit a record high on June 27, driven by broad-based gains, falling Treasury yields, and strong economic data. A U.S.-China trade deal signed on June 25, including China’s pledge to deliver rare earth materials, eased tariff concerns, (as we predicted) though volatility spiked intraday after Trump terminated talks with Canada over its digital services tax. The index remains above its 50-day moving average, signaling bullish momentum, though the Relative Strength Index (RSI) at 70.50 suggests potential near-term consolidation. June has been robust, with the S&P 500 up 4.83% month-to-date, the Dow up 2.9%, and the Nasdaq up 7.1%, building on May’s strong gains of 6.3%, 4.2%, and 9.7%, respectively.

The Key Developments were on Trade and Inflation as U.S.-China trade talks in London culminated in a framework agreement, pending final approval from Trump and Xi Jinping, extending the tariff truce to September 1. Trump also signaled deals with 18 other trading partners by Labor Day, with the July 9 EU tariff deadline deemed “not critical.” The May PCE report showed headline inflation at 2.3% (up from 2.1%) and core PCE at 2.7%, slightly above expectations, but the May CPI report indicated cooling price pressures at 1.7% annualized, boosting hopes for Fed rate cuts in late 2025. Consumer confidence improved to 102.5 in June, though the US Index of Consumer Sentiment fell to 52.20 in May, its third-lowest level on record. On top of that, Corporate Earnings continued not to disappoint, starting with NVIDIA which rose 1.8%, nearing a $4 trillion market cap, driven by AI demand, while Micron’s upbeat forecast lifted semiconductor stocks. Salesforce and Oracle continued to bolster tech, with Oracle’s 13.3% surge on June 12 reflecting strong AI-driven earnings. Nike soared 15% after better-than-expected guidance, signaling a sales recovery. However, Broadcom slipped 5% on post-earnings, and Boeing’s production issues weighed on the Dow. S&P 500 Q2 earnings growth is projected at 8.6%, down from 12.1% in 2024 due to tariff costs.

On the Hill, the Senate’s review of the “Big, Beautiful Bill” to extend 2017 tax cuts intensified, with Elon Musk criticizing its $2.8 trillion deficit impact as “utterly insane.” The Federal Reserve’s June 17–18 meeting held rates steady, but expectations for a 25-basis-point cut by July 30 rose to 30% from 20%. Geopolitical tensions eased after a U.S.-brokered Israel-Iran ceasefire, reducing oil price pressures. However, few can deny the President has the political capital to get this done by his date, he began the lobbing last week and the Senate will stay in session until it done by July 4 President Trump’s target for signing the tax bill. We will see if the Trump mojo results in moving the Fed, whose next meeting to finally cut interest rates. The markets are pricing in two to three rate cuts for 2025. Despite trade and fiscal uncertainties, resilient corporate earnings, easing geopolitical risks, and cooling inflation support market optimism, all point to a strong market the remainer of this year. Who knows what other surprises are ahead but so far so good.

Even the housing market shows cautious stabilization. Freddie Mac reported the 30-year fixed mortgage rate at 6.80% on June 26, down from 6.82% the prior week, with the 15-year rate at 5.93%. Zillow notes a national average of 6.68%, with regional variations. The Mortgage Bankers Association (MBA) projects rates at 6.6% in Q3 2025, falling to 6.5% by year-end, while Fannie Mae forecasts 6.0% by 2026.

Home prices remain elevated, with the National Association of Realtors reporting a median existing home price of $416,500 in May, up 0.6% from April. A 6.80% mortgage translates to a $2,998 monthly payment, challenging affordability. Inventory is improving, but single-family housing starts dropped 10% year-over-year in May. Purchase applications rose 6% for the week ending June 18, up 22% from last year, driven by increased supply, while refinance activity remains low as borrowers await significant rate declines. KB Home lowered its revenue forecast to $6.30–$6.50 billion, citing subdued demand due to high rates and affordability concerns.

And the Outlook? Markets are resilient, fueled by trade progress, strong earnings, and expectations for lower rates. So, our positions in both the US and the European markets have been rewarded and we expect that to continue throughout the year. In housing, stabilizing rates and growing inventory offer hope, but high prices and rates continue to strain buyers. Investors should stay diversified and monitor July’s trade and Fed developments closely for potential market-moving events.

Mike