The Setup & Where to Focus

Stocks were little changed last week despite uncertainty ahead regarding the Israel-Iran situation and after a tenuous Fed meeting. 

• The S&P 500 (SPX) dropped just 0.15% during the four-session stretch, making it back-to-back modest weekly dips. The Nasdaq Composite (COMPQ) was up fractionally, thanks to a bounce-back in Apple (AAPL) and NVIDIA (NVDA). Tesla (TSLA) was the notable laggard among the Magnificent Seven stocks. 

Markets took a busy week of macro volatility in stride—the Cboe Volatility Index (VIX) climbed above 22 during the Thursday market holiday, but Wall Street’s fear gauge settled back down under 21 by Friday’s close. 

• There are plenty of volatility catalysts, though. President Trump reported that the US dropped three bombs on Iranian nuclear sites over the weekend, bringing “monumental” damage to their facilities. The action caused stock market futures to fall modestly Sunday night. Oil rallied above $77 per barrel, near last week’s high.

• While now taking a backseat to geopolitical headlines, Trump’s target date for the One Big, Beautiful Bill Act (OBBBA) signing is just 11 days away. 

• Then, on July 9, the 90-day reciprocal tariff delay expires. 

Digging into the sectors, it was more of the same trend. 

• Energy (XLE) was once again the best among the 11 groups. Unlike the previous week, oil (USO) generally traded sideways, posting just a 1.5% gain. The result for oil & gas stocks was a tepid 1% advance. 

• The June Bank of America Global Fund Manager Survey revealed that investors are notably underweight the Energy sector, so as geopolitical flare-ups occur, it’s natural to see protracted alpha in the space. 

• Keep in mind that Energy is just 3.2% of the S&P 500. Thus, even a significant rally in the group won’t budge the SPX all that much. Historically, some investors have used the Energy sector as a potential hedge against geopolitical conflict in the Middle East and rising oil prices.

As Energy performed well for a second straight week, Financials (XLF) rebounded after bringing up the rear in the previous week. 

• While there was ongoing weakness among the payment processors, Visa (V) and Mastercard (MA), the big banks righted the ship. JP Morgan Chase (JPM) jumped 3.8%, Bank of America (BAC) bounced 3.2%, and Wells Fargo (WFC) rallied 4.2%. 

• The GENIUS Act was a possible catalyst for the banking industry. On Tuesday, the Senate passed the bill establishing the first federal framework for dollar-pegged stablecoins. It opens the door to wider stablecoin adoption, potentially increasing business opportunities for large financial institutions. 

• Of course, shares of crypto-direct companies, like Coinbase (COIN), an S&P 500 component, soared. COIN climbed 27% over the four-day period, while V and MA sunk 4% and 5%, respectively. 

• Circle (CRCL), a recent fintech IPO, experienced a significant and rapid increase in its stock price, climbing from under $150 immediately before the GENIUS Act was approved to $250 by Friday afternoon. 

Checking in on Aerospace & Defense, the most direct play on the Israel-Iran conflict, the iShares US Aerospace & Defense ETF (ITA) was close to unchanged last week. 

• In fact, the fund has consolidated its Q2 surge since the June 10 close. The fund has formed what some technical analysts refer to as a 'coil pattern.' Technical analysis theory suggests that such patterns are often resolved in the direction of the longer-term trend, which in this case has been positive. However, technical analysis is not a reliable predictor of future performance. 

• On a short-term technical basis, investors must monitor the $180 level on ITA. A breakdown below $175, however, could be a bearish cue.

Away from large caps, it was more of the same—consolidations, coils, and sideways price action. 

• The iShares Russell 2000 ETF (IWM) added just 0.4%, but that was good enough for outperformance to the choppy SPX. The same tailwinds that lifted the big banks helped smaller, regional financial institutions. The SPDR S&P Regional Banking ETF (KRE) added 1.3% during Fed Week. Even with the rally, the fund is 18% below its late-2024 all-time high. 

• The animal spirits that filled Wall Street’s trading floors immediately after President Trump’s November victory are harder to find these days. Recent legislation, such as the GENIUS Act, may create new opportunities for banking institutions, potentially impacting the performance of small-cap bank stocks.  

• For IWM, investors will be watching the $214 to $216 zone. A breakout above this technical resistance level could signal renewed positive momentum. 

• To touch on mid-caps for a moment, the SPDR S&P MidCap 400 ETF (MDY) inched up 0.6% but remains rangebound going back to mid-May.

Turning to international stocks, there was modest underperformance. 

• The Vanguard FTSE All-World Ex-US ETF (VEU) shed 1.3%, making it back-to-back weekly declines for the first time since around Liberation Day. 

• A bump up in the US Dollar Index (DXY) helped US equities relative to international stocks, but the performance differential was not all that big. 

• Both domestic and foreign markets appear to be in a wait-and-see mode regarding how the next two weeks unfold, given the multitude of macroeconomic volatility sparks that could be ignited. 

• For VEU, poor price trends in big-cap pharma didn’t help its cause—Health Care is a significant weighting in Europe. Elsewhere, tech and consumer-related shares in China gave back ground, while Japan’s two biggest holdings, Toyota Motor (TM) and Sony (SONY), were both down notably. 

• We’ll keep watching Latin America, which has been a stealthy YTD winner in a sea of ex-US green. The iShares Latin America 40 ETF (ILF) is up 23% in 2025, dividends included.

In the bond market, all eyes were on last Wednesday’s 2 p.m. ET release of the Federal Open Market Committee’s (FOMC) interest rate decision and statement. 

• The policy rate was left unchanged, but voting members ratcheted up their inflation forecast while reducing the growth outlook. The Fed’s latest Summary of Economic Projections (SEP) now calls for 1.4% US real GDP growth this year, down from 1.7% in the March SEP. It sees inflation running at a 3.1% clip in 2025, up from a 2.8% forecast three months ago. 

• Bonds took the dour Fed view without much issue—the yield on the benchmark 10-year Treasury note fell last week from 4.42% to 4.38%. The peak a month ago was 4.63%, while 4.32% is the June low so far. 

• Like stocks, interest rates are consolidating. Price action might have put bond traders to sleep, but Powell heard his fair share of wake-up calls from President Trump. The POTUS posted several Truths calling out the “stupid” and “numbskull” Fed Chief. Similar sentiment was voiced to the press in White House gaggles before and after Wednesday’s interest rate decision. 

• Then, on Friday, Fed Governor Waller seemed to audition in real-time for the upcoming job opening at the FOMC, calling for rate cuts as soon as July. A clear outlier among Fed voters, Waller appealed to Trump’s demand for lower interest rates. 

• It’s unclear, though, if dropping the Fed Funds target rate would do much to bring down longer-term yields—some fear that easing would spark selling in the 10-year note and 30-year bond, potentially worsening the fiscal burden. 

• Of course, hardly anybody waved such a cautionary flag when the Fed cut rates by 100 basis points from September through December last year. And, not surprisingly, the 10-year soared from 3.6% to 4.8% in four months back then. While many market participants are concerned that a Fed rate cut could lead to higher long-term yields, other outcomes are possible. In some past easing cycles, long-term yields have fallen. We might not find out until September.

Finally, in the commodities market, as oil prices ranged in the $70s per barrel, the real action was in the natural gas pits. 

• Henry Hub (UNG) climbed to its best level since early April as a heat wave now spreads across the Northeast. Warm temps also grip Europe. 

• Soft commodities and agricultural products were weak, but, on net, the S&P GSCI Commodities Index reached a fresh high dating back to June 2022. 

• Gold (GLD) was left out—the precious metal peaked on Sunday night, June 15, near $3,450 per ounce before falling through the holiday-shortened trading week to settle at $3,368. 

• Bitcoin (IBIT) featured similar price action before falling hard after the US struck Iran. The token traded below $100,000 by Sunday evening.

Weekly Calendar Look Ahead

A host of housing data litters the tape throughout the final full week of the first half. Expectations are very low given the tepid state of the real estate market. Fed speak ramps back up, highlighted by Powell’s semi-annual testimony to Congress. PMI surveys and the May PCE Price Index are other volatility catalysts, and investors will be particularly attuned to the latest developments in the Middle East. Let’s get to it.

On Monday, the Fed speaks starts early. Mary Daly from the San Francisco Fed spoke over the weekend, and Waller hit the public circuit once again this morning. Bowman, Goolsbee, and Kugler all talk with reporters today. 

• In terms of data, the key indicator is the S&P Global Manufacturing and Services Flash PMIs for June. These are among the first looks at this month’s soft data, and expectations were for modest downticks in both categories. 

• Existing Home Sales for May came at 10 a.m. ET, with Treasury bill auctions occurring just before lunch. 

Tuesday features a hefty dose of macro data points, but geopolitics will be first in focus at the NATO Summit at The Hague. 

• Back home, the weekly Johnson Redbook Index of retail sales prints in the premarket—it ticked up to 5.2% YoY growth last week. 

• Then, more housing market data crosses the wires, which comes after earnings from KB Home (KBH) on Monday. Before the bell, the S&P/Case-Shiller Home Price Index and the FHFA US House Price Index are released. Both are April figures, and they usually don’t stir up much volatility. 

• More market-moving may be Powell’s testimony before the House Financial Services Committee, which begins at 10 a.m. ET. At the same time, the Conference Board’s Consumer Confidence Index for June is released, and the consensus calls for a slight dip from the May reading. 

• Additional Fed speak and Treasury auctions are scheduled for the afternoon, ahead of earnings from FedEx (FDX), a key macro bellwether.

Powell hops over to the Senate Banking Committee room on Wednesday at 10 a.m., the same time May New Homes Sales is released. 

• Investors will digest the usual weekly MBA Mortgage Application data and the EIA’s oil storage report. 

• Of interest will be NVIDIA’s Annual General Meeting of shareholders.

On Thursday, macro eyes focus away from Capitol Hill and back on the data. 

• Durable Goods Orders for May, a third look at Q1 GDP and PCE prices, the Chicago Fed National Activity Index, the Goods Trade Balance, Business Inventories, and Jobless Claims all hit at 8:30 a.m. 

• Markets may move most on Initial Claims—if we see a number north of about 260,000, that will stoke slowdown fears and lower interest rates. 

• Another round of Fed Speak is heard throughout the session, and after the market opens, Pending Home Sales for May are released along with the KC Fed Manufacturing Index. 

• Nike (NKE) earnings cross after the bell—another good read on the consumer and China.

Friday’s key data point will be the May PCE Price Index report. 

• With CPI and PPI in hand, the market has a good beat on what it might show. The consensus points to a 0.1% rise in both the headline and core rates, bringing YoY PCE inflation to 2.1% and 2.5%, respectively. A minimal tariff impact is priced in, but economists expect larger duties to be reflected in reported prices for June and July. 

• Personal Income and Spending data for last month should show another solid Saving Rate figure, given healthy wage gains but cautious overall spending. 

• The University of Michigan Surveys of Consumers is the final routine report of the week. Like all survey-based data, its findings can be subject to various interpretations and may reflect prevailing consumer sentiment. 

• Lastly, the Fed releases its annual bank stress test results after the close.

Fiscal Policy Framework

Senate Republicans have little time left to meet President Trump’s Independence Day deadline to get the OBBBA to the Resolute Desk. The chamber’s version of the reconciliation package faces internal opposition and potential procedural speedbumps, including the “Byrd Bath,” in which the Senate Banking Committee parses the legislation for extraneous provisions. We’ve already seen market-moving tweaks, including impacts on the solar industry and hospital stocks. Meeting the July 4 deadline for the OBBBA is a key focus for markets, as legislators work to pass the bill ahead of concerns about a potential economic slowdown and future fiscal challenges.

Regarding trade, the July 9 deadline for the reciprocal tariff delay is in view. President Trump’s early departure from last week’s G-7 meeting in Canada may have delayed potential deals. Markets have largely priced in the expectation that agreements will be worked out in one form or another and that the extreme levies seen on April 2 will not come to pass. 

Risks and Opportunities

• President Trump stepped up his pressure on Powell, even suggesting he may consider firing the Fed chief. Markets looked past it last Friday, but volatility could resurface if the trend continues. Over the weekend, Commerce Secretary Lutnick joined in criticizing the Fed.

• The NAAIM Exposure Index rose to its highest level since mid-December. It’s just one positioning report, but investors have clearly turned more bullish, which could be a contrarian indicator. Survey data like the AAII Sentiment Index and the CNN Fear/Greed indicator remain subdued, however.

• Gold, along with Aerospace & Defense stocks, is in healthy consolidations, and the technical bias is likely higher.

• Historically, July has been a strong month for the Nasdaq 100 ETF (QQQ), which has posted a positive return in 14 of the last 15 years. However, past performance is not a guarantee of future results, and seasonal trends may not hold true in any given year.

Quick Hits

• The oil rig count fell for an eighth consecutive week despite the rise in WTI; this could support prices in the weeks ahead.

• In a sign of the times, CRCL’s market cap is now larger than that of FDX.

• The VIX doesn’t usually hover in the low 20s for very long, so we expect a gradual decline in the volatility index or a sudden spike into the 30s, underscoring the macro “wait and see” mantra right now.

• With the abundance of housing data this week, the NAHB Homebuilder Sentiment Index dropped to its lowest level since December 2022, as reported last week.

• Used cars are seeing some upside price pressure—Cox Automotive’s Manheim Used Vehicle Valued Index climbed 1.7% in the first half of June, bringing the YoY increase to 6.5%.

• AAA predicts a record number of Americans are expected to travel domestically during the July 4 week.

• The average US stock, as measured by the Invesco Russell 2000 Equal Weight ETF (EQAL), is flat since March 2021.

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