Markets rallied in June, driven by solid corporate earnings, and rising expectations for Federal Reserve rate cuts later this year. Despite mixed economic data and geopolitical tensions, the S&P 500 climbed 5.1% to a new all-time high, marking its best two-month stretch since 2023.
Markets
Equities surged across the board. Even with the strong recent performance domestically, international and emerging market stocks have been the strongest performers this year. International developed and emerging markets gained 2.2% and 6.6% for the month and are up 19.9% and 15.6% year-to-date. Within the U.S., growth stocks had a strong month, up 6.3% while mid cap and small cap stocks increased by 3.6% and 4%, respectively. Technology stocks continued to lead, supported by AI-driven optimism and strong earnings.
Bond markets were also positive for the month of June. The 10-year Treasury yield declined to 4.24%, and the U.S. Aggregate Bond Index ended up 1.5% for June, and up 4.0% year-to-date. The U.S. dollar continued its decline, down over 10% for the year, supporting international stocks and commodity prices.
Economic Data
Inflation rose slightly but was in line with forecasts. May’s Consumer Price Index rose just 0.1% month-over-month and 2.4% year-over-year. Core PCE inflation came in at 2.7%, still above the Fed’s 2% target. Meanwhile, the labor market exceeded expectations, adding 139,000 jobs in May and unemployment remained steady at 4.2%. Consumer spending and housing activity softened during the month.
Key Developments
The Fed held rates steady at 4.25–4.50% but signaled openness to cutting later this year. Markets now expect the first cut by September. In Washington, the proposed Big Beautiful Bill which increases the deficit by $3.3 trillion has renewed fiscal concerns, though market impact was muted.
Geopolitical tensions escalated momentarily following a series of strikes between Israel and Iran, subsequently involving the United States and prompting a brief flight to safety. Markets stabilized as the two countries agreed to a ceasefire after 12 days of conflict.
Corporate earnings exceeded expectations, with over 65% of S&P 500 companies beating revenue estimates, particularly in tech and consumer sectors.
Takeaways
June demonstrated the market’s ability to endure changes in macro and geopolitical conditions. Although inflation is above the Federal Reserve targeted inflation rate, rate cuts are still anticipated. Investors continue to contend with risks associated with policy discussions and global instability. Maintaining a globally diversified portfolio across asset classes and staying focused on long-term objectives remains paramount in this evolving environment.
