Markets Retreat as Geopolitical Tensions Outweigh Dovish Inflation Data

Performance for Week Ending 6.13.2025:

The Dow Jones Industrial Average (Dow) fell 1.3 percent, the Standard & Poor’s 500 Index (S&P 500) declined 0.4 percent, and the Nasdaq Composite Index (Nasdaq) fell 0.6 percent. Sector breadth was negative, with seven of the 11 S&P sector groups closing lower. The financials sector (-2.6 percent) was the worst performer while energy (+5.7percent) was the strongest.

*See below for Index Definitions

MARKET OBSERVATIONS: 6.9.2025  – 6.13.2025

The S&P 500 finished the week lower as a spike in geopolitical tensions outweighed reports showing tame consumer prices, softer-than-expected producer prices, an uptick in consumer sentiment, and largely unchanged initial jobless claims, all of which helped calm investor jitters around tariff-driven price pressures. Despite the moderation in inflation, Federal Reserve (Fed) policymakers are widely expected to keep rates unchanged at this week’s Federal Open Market Committee meeting. In recent months, Fed Chair Powell has said the central bank will maintain a “wait-and-see” approach amid unresolved trade and budget issues that could impact both inflation and economic growth. This meeting will be more about what the Fed says than what it does. All eyes will be on Fed Chair Powell’s post-meeting press conference for hints of a more dovish posture.

In terms of the lower-than-expected inflation reports, so called “Fed Whisper” Nick Timiraos of the Wall Street Journal said the inflation data won’t change much for the Fed because it will take several months of price data to convince officials that tariff-related risks to inflation won't affect prices in a concerning manner. Markets seem to be in sync with this, according to the CME FedWatch tool, which shows traders pricing in a 67 percent probability the first rate cut will be delivered at the September Fed meeting.

Economic Roundup: Inflation was the major focus of last week’s data calendar with data showing inflation remained muted in May—a sign that tariffs have yet to result in higher prices for consumers and businesses. The Labor Department reported that consumer inflation unexpectedly decelerated in May amid lower energy prices, with the consumer price index (CPI) up 0.1 percent in May, lagging the Bloomberg-compiled consensus of 0.2 percent, and on par the pace of growth in April. Annually, inflation accelerated to 2.4 percent last month. On a "core" basis, which excludes volatile food and energy costs, May CPI rose 2.8 percent year over year, matching April’s rate. Meanwhile, a second report from the Labor Department showed prices at the producer level rising 0.1 percent from a month earlier, compared with the median forecast of economists that called for a 0.2 percent increase. The core producer price index rose 0.1 percent, below the expected 0.3 percent increase and following a 0.2 percent drop in April. Monthly core prices increased 0.1 percent, versus a 0.2 percent gain the prior month. Lastly, a survey released by the New York Fed showed median inflation growth expectations for one-year U.S. inflation growth eased to 3.2 percent in May from 3.6 percent in the previous month. The median inflation growth expectations were lowered to 3 percent from 3.2 percent for the three years ahead, and narrowed to 2.6 percent from 2.7 percent in the five-year projection.

Elsewhere, sentiment among U.S. small businesses rose in May for the first time in 2025 as firms grew more upbeat about the economic outlook. The National Federation of Independent Business optimism index climbed 3 points to 98.8. Seven of the survey’s 10 components improved, led by better expectations for business conditions and real sales. The rebound in the headline number follows one of the longest stretches of declines in the last decade and came during a month when trade tensions generally eased. Meanwhile, data from the University of Michigan showed U.S. consumer sentiment rising by the most since January 2024 as concerns about the economy eased and short-term inflation expectations showed a marked improvement. The preliminary June sentiment index rose 8.3 points from a month earlier to 60.5. The figure easily topped all expectations in a Bloomberg survey of economists.

Policy Moves: On the policy front, a solid sale of 30-year Treasurys reduced fears that spiraling deficits are causing investors to shun the maturity, with bonds also gaining as cooling inflation fueled bets the Fed will have room to cut rates should the economy lose steam. Working on several trade deals, President Trump said he may raise U.S. auto tariffs in order to boost domestic auto manufacturing, a move that could further ratchet up tensions with trading partners. Trump also signed legislation terminating California regulations that would have banned the sale of gasoline-powered cars in 2035, a victory for carmakers and oil companies. Separately, after fresh negotiations in London, the latest trade framework with China appears to represent a reset to earlier terms, with tariff rates remaining essentially unchanged and rare earth shipments returning to pre-April 2 conditions. The agreement is seen as a short-term fix with many issues, including trade imbalances and malign activity remaining unresolved, and the U.S.-China trade relationship still facing significant challenges.

The Week Ahead: Events in the Middle East will be front and center in the days ahead, with investors focused on the potential for further escalation between Israel and Iran. Otherwise, decisions from a host of central banks will be a key theme, with policy decisions due from the Fed, the Bank of Japan, and the Bank of England, among others. On the data calendar, key economic indicators include the May retail sales and industrial production reports on Tuesday and housing market data due including housing starts and building permits on Wednesday. U.S. markets are closed on Thursday in observance of the Juneteenth holiday. Fed policymakers are expected to stand pat even in the face of last week’s weaker-than-expected inflation prints. As part of the two-day Fed meeting, policymakers will also release an updated Summary of Economic Projections report, with investors looking for highlights on how recent tariff developments have impacted the Fed’s 2025 outlook. It will be a quiet week on the earnings front with just five members of the S&P 500 expected to release fiscal quarter results.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Nasdaq Composite Index is a broad-based capitalization-weighted index of stocks in all three Nasdaq tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.