Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of June 2025.
GLOBAL
TRENDS
On April 2, President Donald Trump announced reciprocal tariffs on imported goods on a country-by-country basis, which were more severe than market participants expected.
On April 9, the Trump administration lowered tariff rates with most trading partners to 10% for 90 days to allow trade negotiations to commence. Further reductions were announced on May 12. In response to these announcements, investors have noticed a considerable increase in global trade uncertainty, lower business sentiment, lower consumer sentiment and elevated market volatility. Market and economic fundamentals that we favor (labor market strength, moderating inflation, easing monetary policy and strong corporate earnings) remain resilient. However, we expect these fundamentals to deteriorate until a clear path forward for global trade is agreed upon by policymakers and businesses alike. Looking ahead, the 90-day reprieve is set to expire in early July.
After restrictive monetary policies helped curtail persistent inflation, most global economies have begun lowering interest rates to help foster growth and support global labor markets. Short-term interest rates from most of the worlds' largest central banks are still elevated relative to the last decade, which adds pressures to global financial systems. Offsetting these easier global financial conditions is a sharp increase in global trade policy uncertainty.
Geopolitical tensions escalated over the last month in the Middle East with a conflict between Iran and Israel, before a ceasefire agreement was announced in late June. Additionally, the war in Ukraine continues. Aside from the human tragedy always associated with War, these conflicts have also added to risks and volatility for financial markets.
Taken together, recent global and economic actions have kept investors on edge. Despite these concerns, global economic growth remains resilient, driven by consumer spending in most developed nations. We expect this to continue in 2025, although likely at a slower rate than historical norms.
CENTRAL BANK
POLICIES
The Federal Open Market Committee last met on June 18 and held interest rates steady, keeping their target range for the federal funds rate at 4.25% to 4.50%.
Although the policy stance was unchanged, the committee's formal press release did address the heightened uncertainty around fiscal policies: "Uncertainty about the economic outlook has diminished but remains elevated." The committee is scheduled to meet next on July 30, and markets are not expecting any changes to the target interest rate. Looking out over all of 2025, at the end of June, markets are expecting two or three 25 basis point interest rate cuts as implied by federal fund futures.
The European Central Bank last met on June 5 and lowered its target interest rate by 25 basis points. In a prepared statement, the ECB noted that future decisions "will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission." At the end of June, market participants expect one further 25 basis point cut from the ECB in the second half of 2025.
EQUITY
PERFORMANCE
Global stocks continued to move higher in June with the S&P 500 ending the month at a new all-time high.
Specifically, the S&P 500 rose by 5.1%, and the blue-chip Dow Jones Industrial Average increased by 4.5% over the month. The tech-heavy Nasdaq Composite grew by 6.6%. International stocks were higher with the MSCI Emerging Market Index posting gains of 6.0%, and the MSCI EAFE Index of developed international equities gained 2.2%. Finally, the MSCI All Country World Index of developing and developed market stocks advanced by 4.5%.
The first-quarter earnings season detailed earnings growth of over 12.5% compared to the first quarter of 2024, with over 65% of companies in the S&P 500 able to grow actual earnings. From a sector lens, seven sectors were able to grow their earnings while four sectors saw earnings contractions. Looking ahead, second quarter earnings have started, and by the end of July, over 60% of the S&P 500 will have provided investors with financial updates.
When looking at earnings expectations, full year 2025 and 2026 earnings updates started to move higher in June after moving lower for the first five months of 2025. Specifically, at the end of June, investors are expecting annual earnings growth of around 7.4% for 2025 and 12.3% for 2026.
INTEREST RATES
AND GROWTH
On June 26, quarter-over-quarter annualized U.S. GDP growth was revised lower from -0.2% to -0.5% for the first quarter of 2025.
The first-quarter results detailed considerable changes in imports and private investment, as consumers and businesses had to grapple with changes to domestic trade policy. The result of the changes was a contraction for the overall economy by 0.5%, the first negative quarterly growth figure since 2022. Despite the volatility, the largest driver of GDP, private consumption, continued to show residual strength despite cooling from the prior two quarters.
At the June FOMC meeting, the Fed released their latest summary of economic projections, which details the central bank's outlook on a variety of prospective economic measures. Specifically, investors digested lower expected GDP growth, higher unemployment and higher core inflation forecasts for 2025.
During June, the U.S. Treasury yield curve moved lower across all term points. Specifically, the two-year yield fell by 18 basis points and ended the month at 3.72%. The 10-year yield fell by 17 basis points to end the month at 4.23%. In addition to lower Treasury yields, credit spreads, or the premium investors require for credit exposures, also moved lower for both investment-grade and high-yield credit bonds over the last month.
Mortgage rates moved lower in June, as the Freddie Mac 30-year Primary Mortgage Market Survey fell to 6.77% on June 26, down 12 basis points from May 29.
POLITICAL AND
REGULATORY TRENDS
Trump announced reciprocal tariffs on imported goods on a country-by-country basis, which were more severe than we or market participants expected.
The goal of the tariffs is to decrease the trade deficit, promote domestic manufacturing and protect American workers. The net effect of these policy changes resulted in the largest increase in the effective tariff rate on imported goods since the 1920s, which has put downward pressure on business sentiment and upward pressure on inflation expectations from U.S. consumers.
Over the last month, progress on trade deals and a de-escalation of trade disputes with China has taken place which has curtailed some of the current economic uncertainty. However, the 90-day pause on lower tariff rates announced April 9 is set to expire in early July.
Geopolitical tensions escalated over the last month in the Middle East with a conflict between Iran and Israel. On June 21, the United States attacked three major Iranian nuclear sites. Trump noted the goal of the operation was "the destruction of Iran's nuclear enrichment capacity and a stop to the nuclear threat posed by the world's number one state sponsor of terror." Shortly thereafter, a ceasefire agreement was announced in late June.
INVESTMENT
TRENDS
Domestic equities started to see upward changes on future earnings expectations in June.
In addition, the most recent earnings season notched another strong quarter of actual earnings growth for large-cap equities. Headline inflation has moved lower but continues to be elevated with May's CPI of 2.4%. Core prices, or CPI excluding food and energy, also continues to be above the U.S. central bank's 2.0% target, with the most recent reading detailing core prices rising by 2.8% over the last year. The first-quarter U.S. GDP report detailed a contraction of 0.5% in U.S. economic growth, due to a dramatic increase in import activity. Finally, the most recent summary of economic projections detailed a drop in expected year-end 2025 GDP of 1.4%, with an increase in expected inflationary pressures.
It is our belief that peak trade uncertainty is now behind us; however, geopolitical tensions continue to weigh on investor sentiment. Despite this, the domestic economic fundamentals that investors monitor (labor market strength, inflation moderation and strong corporate earnings) remain resilient. On balance, the headwinds and tailwinds currently at play suggest there is a potential path for global economic growth, albeit at a slower pace than initially expected.
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