Market Snapshot: Geopolitics & Economic Signals

Fresh news and strategies for traders. SPY Trader episode #1258. Welcome back to Spy Trader, your daily dose of market wisdom! I'm your host, Money Mike, and it's 12 pm on Monday, June 23rd, 2025, Pacific. We've got a lot to unpack from the markets today, so let's dive right in. The US stock market is showing a mixed but generally resilient performance, navigating those ongoing geopolitical tensions and a stable, albeit closely watched, macroeconomic environment. Today, June 23rd, major US stock indices are seeing some nice gains after an initial period of uncertainty. The Dow Jones Industrial Average is up 0.7%, while the S&P 500 and the techheavy Nasdaq Composite have each risen 0.8%. This upward movement comes as stocks are trading at their session highs, signaling a positive shift in investor sentiment during the day. In contrast, last week saw these major indexes largely unchanged as investors closely monitored the escalating conflict between Israel and Iran. Looking at the yeartodate picture, the S&P 500 has gained just over 2% including dividends in 2025, which is a rebound after a substantial decline earlier in the year. The Nasdaq Composite saw a modest 0.2% increase over the past week. Breaking down the sector performance today, Consumer Discretionary is leading the charge, up 1.45%, followed by Technology, up 0.24%, and Communication Services, up 0.06%. Industrials, Real Estate, and Utilities are relatively flat. On the other side, we're seeing declines in Consumer Staples, down 0.39%, Energy, down 1.10%, Financials, down 0.43%, and Health Care, down 0.78%. Materials also saw a slight dip. Now, yeartodate, valuestyle sectors like Industrials and Utilities have been among the top performers, each rising over 8%. Growth sectors like Technology and Consumer Discretionary have been lagging so far this year. Let's talk about the big news items. The primary driver of recent market sentiment has been the Middle East conflict. On Saturday, June 21st, the US conducted strikes on three Iranian nuclear facilities. While initial market reactions were relatively contained, with US stock futures edging higher earlier today, investor sentiment does remain fragile. This caused oil prices to initially surge, with Brent crude up 25% since early June, due to concerns about supply disruptions, especially regarding the Strait of Hormuz. However, oil prices later plunged on Monday as news emerged that an Iranian missile attack on a US base in Qatar was thwarted. The unpredictability of this situation and the potential for a sustained increase in oil prices could lead to renewed stagflation fears and complicate the Federal Reserve's inflation outlook, potentially delaying interest rate cuts. We also have some companyspecific movers. Tesla's stock jumped over 9% today after the electric vehicle maker launched its driverless robotaxi service in Austin, Texas. On the flip side, Super Micro Computer, the AI server maker, tumbled nearly 7% after announcing plans to issue 2 billion dollars in convertible bonds. Shares of Novo Nordisk fell more than 5% following the revelation of results from its latest weightloss drug trial. And Goldman Sachs announced the firmwide launch of its GS AI Assistant, a generative AI tool aimed at boosting employee productivity. Looking at the broader macroeconomic picture, the annual inflation rate for the United States was 2.4% for the 12 months ending May 2025, a slight increase from April's 2.3%, but still below expectations. Core inflation, which excludes volatile food and energy prices, remained at 2.8% in May, holding at 2021 lows. The slight moderation in inflation has been a positive sign. On interest rates, the Federal Reserve has maintained the federal funds rate target range at 4.25% to 4.50% since December 18th, 2024, marking the fourth consecutive meeting without a change. This 'waitandsee' approach reflects caution amid economic uncertainties. However, Fed officials do anticipate two 25basispoint rate cuts later in 2025. Stable interest rates can encourage consumer and business spending by making borrowing cheaper, which generally boosts stock prices, especially for dividendpaying sectors. And finally, employment. The US unemployment rate held steady at 4.2% in May 2025 for the second consecutive month, remaining within a narrow range since May 2024. Total nonfarm payroll employment increased by 139,000 in May, with employment trending up in healthcare, leisure and hospitality, and social assistance. The current stable unemployment rate suggests a resilient labor market. So, what does this all mean for your money? The US stock market is currently in a state of cautious optimism, influenced by a delicate balance of geopolitical risks and a relatively stable domestic economic picture. First, geopolitical sensitivity and oil prices. The market's immediate response to the US strikes on Iran was less dramatic than some anticipated, suggesting investors might be viewing the conflict as localized or are betting on a quick resolution. However, the volatility in oil prices remains a key concern. A sustained rise in oil, driven by potential supply disruptions, could reignite inflation concerns, forcing the Federal Reserve to maintain higher interest rates for longer, which would negatively impact corporate earnings. Our recommendation here is to closely monitor developments in the Middle East, particularly any impact on oil production and shipping lanes. Consider hedging against potential oil price spikes, or allocate a portion of your portfolio to sectors that traditionally perform well during inflationary periods, such as certain commodityrelated industries, though the Energy sector showed declines today. Second, inflation and interest rate dynamics. Inflation, while slightly up in May, remains relatively contained. The Federal Reserve's decision to hold interest rates steady reflects a cautious stance. The expectation of two rate cuts later in 2025 provides a degree of optimism for future economic growth and corporate profitability, as lower borrowing costs can stimulate spending and investment. Given the Fed's 'waitandsee' approach and the anticipation of future rate cuts, sectors that benefit from lower borrowing costs and increased consumer spending, such as Consumer Discretionary and Real Estate, could see a stronger rebound in the latter half of 2025. Investors might consider accumulating positions in highquality companies within these sectors that have been undervalued due to earlier interest rate concerns. However, be mindful that Consumer Discretionary has lagged yeartodate, suggesting continued sensitivity to economic pressures. Third, a resilient labor market. The stable unemployment rate and continued job gains indicate a healthy underlying labor market. This provides a foundation for sustained consumer spending, which is crucial for corporate revenues. A strong labor market generally supports the broader equity market. Investors might look for opportunities in companies that directly benefit from consistent employment and wage growth. While the overall market looks stable, the slight decline in the labor force participation rate and employmentpopulation ratio in May warrants continued monitoring to ensure sustained economic health. And finally, some sectorspecific considerations. For Technology, while it's a longterm growth driver, recent underperformance and valuation concerns suggest a need for selective investment. Focus on tech companies with strong fundamentals, clear profitability pathways, and sustainable competitive advantages, especially those with innovative solutions in AI or cloud infrastructure that are not solely reliant on speculative growth. For Industrials and Utilities, these 'valuestyle' sectors have performed well yeartodate and tend to be more stable. Utilities also benefit from lower interest rates due to their dividendpaying nature. Consider these sectors for portfolio stability and consistent returns, especially if market volatility persists or if there are unexpected delays in rate cuts. For Energy, its recent decline despite rising oil prices underscores the volatility and geopolitical sensitivity of this sector. Approach the Energy sector with caution due to its high sensitivity to geopolitical events and fluctuating oil prices. While shortterm gains might occur, longterm investments require careful consideration of global supply and demand dynamics and geopolitical stability. To sum it all up, maintain a diversified portfolio across various sectors to mitigate risks. Prioritize companies with strong balance sheets, consistent earnings, and proven business models that can weather potential economic uncertainties or geopolitical shocks. While shortterm volatility is evident, the underlying macroeconomic conditions, like stable inflation and employment, and anticipated rate cuts, suggest a potentially supportive environment for longterm equity growth. Avoid impulsive decisions based on daily market swings. And always keep a close eye on inflation data, any shifts in the Federal Reserve's stance on interest rates, and the evolving situation in the Middle East, as these will be crucial in shaping the market's trajectory in the coming months. That's all for this edition of Spy Trader. I'm Money Mike, reminding you to stay smart and trade well!