Market Note: Checking Off the Uncertainty Boxes

By Hightower Great Lakes on June 16, 2025

Economy Continues to Chip Away

In the face of tariffs, rising geopolitical tensions and a restrictive Federal Reserve, the economy has continued to be resilient. Soft data continues to improve with the preliminary June UMich consumer sentiment printed at 60.5, well ahead of the consensus of 53.0, its first improvement after four consecutive declines.

After months of negative sentiment, this tells us that consumers are feeling more optimistic about the future of the economy and their personal finances. As of June 9, the Atlanta Fed GDP tracker remains at 3.8%, driven by a strong consumer and cooling inflation and a significant improvement compared to Q1 GDP results.

Last week, we mentioned our expectation of the latest CPI/PPI data to show us a continued slowdown in inflation; that expectation was validated. May’s Consumer Price Index (CPI) only increased 0.1% m/m, leaving the annual CPI rate at 2.4% y/y.

The Federal Reserve’s favorite gauge on inflation, core CPI (excluding food and energy), came in at a 0.1% increase m/m, and 2.8% y/y, compared to forecasts of 0.3% m/m and 2.9% y/y. The Producer Price Index (PPI) only saw a 0.1% rise m/m, falling short of market expectations of a 0.3% increase.

CPI was over 9% three years ago, now hovering around 2%. The lower CPI and PPI numbers played into our narrative that the Fed may have a freer hand to cut rates, and we believe they will be cut in the fall.

U.S. initial jobless claims did see an uptick to 248k w/w. However, we believe it is important to smooth this number out over a longer period, as it can be volatile week-over-week, and the four-week average is at ~240k. Still, initial claims remain well below recessionary periods of 350-375k.

The markets did cool down this week (mainly due to geopolitical escalations in the Middle East), but we remain up ~21% from the April lows. The S&P ended down 0.39%, the Nasdaq down 0.63%, and the Dow Jones down 1.32%.

With Friday’s risk off market movements, defensive sectors led the charge this week, with energy, healthcare and utilities all ending positively. Financials and industrials underperformed. While we are not discounting the uncertainties that remain, the economy has proven to be resilient in the face of all of it.

Chart 1: U.S. Consumer Price Index[1]

Tariff Deals have Begun

We noted last week that negotiations between the U.S. and China would take place starting June 9 in London. This week, the two trade teams wrapped up two days of marathon negotiations.

President Trump announced on Wednesday morning that the deal with China is done, while he acknowledged that both he and Chinese President Xi Jinping had yet to formally sign off on the agreement.

The deal would see China maintain its current 10% tariffs on goods imported from the U.S., while the U.S. would keep 55% tariffs on Chinese imports. The deal will resolve issues between the two countries on rare earth mineral exports, and Trump will allow Chinese students into U.S. universities.

This is significant progress from their previous tariff levies of more than 100% on each other’s imports. The current framework gives both sides until Aug. 10 to finalize a formal agreement; the U.S. and China will continue communicating with goals to reach a deal soon.

As we inch closer to the July 9 deadline on Trump’s reciprocal tariffs, we expect to see continued progression toward more deals. President Trump told reporters this week that he would be sending out letters to trading partners soon, setting unilateral tariff rates and providing a ‘take it or leave it’ offer.

Treasury Secretary Scott Bessent told Congress that it is highly likely that the tariff pause would be extended for countries that are negotiating with the administration in good faith.

Thus far, the U.S. has managed to secure a trade framework with the U.K. as well as China. Tariffs will be a key driver of market movements as we approach the reciprocal tariff deadline of July 9.

Chart 2: U.S. and China Tariffs[2]

Geopolitical Escalation

While tensions between Israel and Iran have been rising over the recent weeks, we saw the conflict reach new heights as Israel launched a series of airstrikes on Iran late Thursday evening.

The operation targeted Iran’s nuclear program and top military officials. Israel stated the operations will last for several days until the threat of Iranian nuclear capabilities is eliminated.

Iran responded Friday with ballistic missiles directed towards Israel. The U.S. reiterated its preference to not be directly involved in the conflict, while remaining committed to protecting our interests and allies in the Middle East region.

Markets responded accordingly early Friday, with risk-off being a large function because of the major increase in geopolitical tensions. The S&P 500 dropped 1.13%, gold rose by 1.5%, and crude oil jumped as much as 13% (ended the day up 7%).

The rise in crude oil prices on Friday was the largest since Russia’s invasion of Ukraine more than three years ago. If sustained, that could reverse the downward slide in gasoline prices.

While Iran contributes around 3% of the world’s total oil production, we would fade the recent oil price spikes and believe there will still be plenty of supply for the world to consume. No Iran production areas were hit during the strikes, and the Strait of Hormuz remains open (a crucial route for exporting oil in The Middle East).

The OPEC+ (Organization of the Petroleum Exporting Countries) alliance has substantial spare oil production capacity that can be brought online relatively quickly. All 12 OPEC members produced 26.75 million barrels per day (bpd) in May, which is up by 150k compared to April.

The five OPEC members that have pledged to make cuts in the OPEC+ agreement are now gradually unwinding these cuts; they have had to raise their combined output by 310k bpd. If the strikes continue to miss target areas and do not impact production, oil prices should cool off in response.

Large Merchants Explore Stablecoins

Reports came out last Friday that Walmart (WMT) and Amazon (AMZN) are exploring issuing their own stablecoins. This led to payment providers like Visa (V) and Mastercard (MA) declining on the news. The development discusses how the large merchants are examining options that threaten the legacy payment providers.

A stablecoin is a type of cryptocurrency that is designed to maintain a stable value relative to a reference asset, like the U.S. dollar. They ‘peg’ themselves to that asset and maintain a 1:1 value with that asset.

The appeal is that these merchants (WMT, AMZN) could bypass legacy card networks using the blockchain, reducing interchange fees and accelerating settlement times, especially for cross-border transactions.

While this development is noteworthy, we are skeptical of it being a legitimate threat to consumer payment modalities. A large regulatory burden remains, with the STABLE (Stablecoin Transparency and Accountability for a Better Ledger Economy) Act still needing to pass through the House and Congress, which will be a large lift and heavily scrutinized.

Furthermore, merchants have long sought to reduce their cost of acceptance, but consumers are not incentivized to change their payment preferences. Merchants are certainly incentivized to promote lower cost rails throughout their operations, but consumers are not urged to use them.

Over time, we may see stablecoins being leveraged to drive more efficient global treasury functions, but stablecoins likely do not have a place in the global flow of money and will not threaten consumer payment systems.

Chart 3: Stablecoin Transaction Volume[3]

Fixed Income

Last week, U.S. Treasury yields rallied over most of the week following downside inflation surprises, weaker-than-expected labor market data and solid demand at the 10-yr and 30-yr Treasury Auctions.

By the week’s end, the 2-, 10-, & 30-year yields were lower by 9, 11, & 7 basis points, respectively. Market participants are anticipating that the Federal Reserve will maintain its current policy stance at this week’s upcoming June Federal Open Market Committee (FOMC) meeting.

Credit markets experienced a sell-off amid heightened geopolitical tensions between Israel and Iran. Investment-grade spreads widened 1 basis point to +131, and high-yield spreads expanded 5 basis points to +353.

In terms of credit quality, the main rating agencies upgraded ratings 47 times and downgraded them 40 times last week. Financials led with the most upgrades, while Communications had the most downgrades.

Tax-exempt yields were lower across the curve last week by 3-4 basis points, led by a decrease in front-end yields. Municipal ETFs recorded inflows of just over $2 billion last week, marking the largest weekly total in over two years and the third largest on record.

The Week Ahead

Economics – Tuesday: Export Price Index, Retail Sales, Industrial Production, Manufacturing Production, Business Inventories, NAHB Housing Market Index; Wednesday: Housing Starts, Initial Claims, FOMC Meeting; Friday: Philadelphia Fed Index

Earnings – Monday: LEN; Tuesday: JBL; Wednesday: PGR; Friday: KR, CAN, KMX, DRI

Return for Selected Indices^[4]

Click here to read last week’s Market Note (6/9).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

---

[1] Source: U.S. Bureau of Labor Statistics, As of June 11, 2025.

[2] Source: BBC Research. As of June 11, 2025.

[3] Source: Paypal, Visa, Nacha. As of May 31, 2025.

[4] Source: Bloomberg. As of June 16, 2025