Week of June 16, 2025

Key Points for the Week

• The S&P 500 retreated late last week on escalating conflict in the Middle East.
• Markets historically have been able to look past near-term geopolitical risk, but the situation merits monitoring.
• One reason for optimism, the S&P 500 gained 20% in a two-month span, a rare occurrence that has been bullish historically.
• Returns are also strong historically after a 20% gain off bear or near bear market lows.

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Current Trends & News is a weekly financial recap curated by SPC Financial®'s team of wealth management and tax-integrated advisors. We monitor and explore the intricacies of the financial world and share insights into market developments.

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Economic Update

A wealth of positive company and economic news lifted markets for much of last week. However, markets stumbled on news that Israel had launched an attack against Iran. Here's what happened:

U.S. - China negotiations were positive. U.S. stock markets welcomed news that the world's two largest economies had successfully established a framework for ongoing discussions.

“The U.S. and China capped two days of high-stakes trade talks with a plan to revive the flow of sensitive goods — a framework now awaiting the blessing of Donald Trump and Xi Jinping…the Chinese had pledged to speed up shipments of rare earth metals critical to U.S. auto and defense firms, while Washington would ease some of its own export controls.”

Daniel Flatley and Annmarie Hordern, Bloomberg

Demand for U.S. Treasuries was solid. The U.S. government issues Treasury bills, notes and bonds to fund government spending. Lately, there have been concerns about whether demand for Treasuries would fall due to buyers' concerns about tariffs or deficits or both. Low demand could mean higher yields on Treasuries – and higher interest costs for the United States, reported Karishma Vanjani of Barron's.

Last week, there was strong demand for Treasuries. “A closely watched auction of 30-year Treasuries saw stronger-than-expected demand on Thursday, easing for now worries that investors would shun the U.S. government's longest maturity.”

Michael Mackenzie, Bloomberg

Inflation remained relatively low. The U.S. Consumer Price Index (CPI), which measures inflation, showed headline inflation was up 2.4 percent year over year in May. When volatile food and energy prices were excluded, prices rose 2.8 percent year over year. The cost of energy declined in May, and the price of gasoline dropped 12 percent.

“The May CPI came in cooler than expected. While tariff impacts could send inflation higher in the months ahead, the fact that prices held steady so far was an encouraging sign. Odds of a September interest-rate cut ticked higher, and bonds rallied on the news. That has led to rallies in riskier and rate-sensitive stocks."

Connor Smith, Barron's

Israel launched an attack on Iran. Stock markets moved lower on Friday after Israel launched an airstrike that targeted Iranian nuclear facilities and military leaders, and Iran responded.

“A full-scale war between Iran and Israel has long represented one of many geopolitical planners' worst-case scenarios. A conflict that damaged global oil supply or shipping would reverberate in the U.S. and across the world by quickly raising oil prices and sending investors selling stocks for safe-haven assets.”

Matt Peterson, Barron's

By the end of the week, major U.S. stock indexes had moved lower. Yields on longer maturities of U.S. Treasuries also moved lower over the week.

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This Week in the Markets

The S&P 500 Index fell slightly last week after a late week retreat on escalating conflict in the Middle East. Despite a more than 20% gain in two months, down weeks have been normal off the lows with four of the last ten weeks seeing the index lower. Nevertheless, the conflict adds a new variable.

Historically, we have seen the S&P 500 down 15% or more for the year then end the year positive three times, and all three times the index gained more than double digits for the year.

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Can Stocks Get Back To Positive In 2025?

We went from one of the worst two-month returns ever to one of the best. As we've noted time and time again this year, investors need to be aware that the worst and best days tend to happen in clusters and if you sell after some bad days, you'll likely only miss out on the best days, which is exactly what happened to many investors.

So just how rare is it to see stocks up more than 20% in two months? Very rare and the good news is it is also very bullish. Only five other times since 1950 have stocks been up more than 20% in such a short period and those times were all great times to be looking for continued strength.

Stocks gained after this rare signal 1-, 3-, 6-, and 12-months later every single time. Up a year later by more than 30% on average. Of course, all those other occasions saw much bigger prior selloffs, so we aren't calling for such a big gain, but this is yet another reason to remain optimistic the second half of 2025. Look one more time at those dates: February 1975, October 1982, December 1998, April 2009, May 2020, and now.

Below is a chart that shows bull markets tend to be choppy and frustrating right around now, which sure played out this time. The good news though is once you can get past this rough part of the bull, better times have been ahead and could last many years.

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Year Three Of Bull Markets Can Be Choppy

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The Conflict in the Middle East

Thursday, June 12, was a tragic and exhausting day. It started with the terrible crash of an Air India flight in India, killing over 250 people—the worst aviation disaster in India since 1996. Then the day ended with Israel striking Iran, targeting their nuclear program and killing several top Iranian military officials (including the head of Iran's powerful Islamic Revolutionary Guards Corps).

This is coming on the heels of the Liberation Day tariff situation, which was subsequently reversed after the market went through a near bear market. The S&P 500 was approaching an all-time high, before the war broke out in the Mid-East. However, as tragic as these events are, let's keep some perspective, at least from a market standpoint.

From a long-term perspective, when it comes to markets volatility is normal. Below is a chart that sums it all up nicely. Amid some of the worst events in history, stocks have continued to eventually move higher, suggesting all those scary times and lower prices were good opportunities. They sure did not feel like it at the time, but they were.

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Stocks tend to go higher, despite all the bad news

Even from a market perspective, that does not mean you should ignore these events, as they can cause a lot of volatility in markets, and even the economy. Russia's invasion of Ukraine tipped inflation over the edge, and we got the highest inflation in 40 years back in 2022—ultimately resulting in a bear market for stocks, with bonds failing to provide diversification. 9/11 was another tragic event that pushed the economy over the edge into a recession, and pulling the dot-com crash into its third year. The reality is bad news eventually will give way to good news. What that chart above does not show is all the good things that have happened throughout history, and it is safe to say they dwarf the negatives. If anything, the fact that the line in the chart has moved up and to the right over time tells you about the dynamism of the US economy, and US companies in particular, as they navigate all sorts of crises.

Volatility Is Normal

Investing in stocks does not come easy, and the return premium you get for investing in stocks over bonds (and pretty much most other asset classes over time) in part reflects the fact that stocks can be volatile. We just went through a near bear market in April, with the market dropping just about 19%. We do not know what will happen over the next few days, or even weeks, but we do know that another bout of volatility would not be surprising. A market correction of 10% happens most years, and sometimes more than once. They are more normal than you might think.

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Volatility Is The Toll We Pay To Invest

For another perspective, the table below shows geopolitical events that have occurred over the last 80+ years (note that they vary a lot in terms of scale), along with median performance of the S&P 500 over the following year. The median return is a bit lower than the historical average return overall. The average return is also weaker than the median return for these events, signaling some asymmetrical downside risk. But context here is very important.

How Do Stocks Do After Major Events?

It is worth noting that much of the negative market behavior after these geopolitical events is often not driven by the event itself. For example, the U.S.S. Cole bombing was coincident with the tech bubble bursting in 2000. What stands out from the chart is not so much the downside risk of geopolitical events, but the coincidence of drawdowns and recessions independent of geopolitical risks. If you look at the major drawdowns, most take place during or near a recession, including 1956, 1973, and 2000-2001.

There are cases where geopolitical risk played some role in the decline. For example, Russia's invasion of Ukraine worsened already building inflationary pressures, eventually contributing to an aggressive Federal Reserve and weighing on equity markets. But that has been the exception rather than the rule. Markets saw strong gains despite the start of the Iraq invasion in 2003 and Israel's Six-Day War in 1967. Of course, the bigger picture beyond the more tactical 12-month time frame is that the markets have always recovered.

Despite several Middle Eastern conflicts that did not lead to market drawdowns, there are some that had market and economic repercussions. The Yom Kippur War in 1973 played at least some role in the ensuing market sell-off. In October 1973, an Arab coalition led by Egypt and Syria launched a surprise attack against Israel on Judaism's holiest day, Yom Kippur. After detecting Soviet resupply to Syria and Egypt, the U.S. began a massive resupply of Israel. The oil cartel OPEC responded by declaring an oil embargo against the U.S. and other countries. In 1973, the U.S. had grown increasingly dependent on foreign oil. As a result of the embargo, oil prices tripled and the added strain on the economy was one of the causes of the recession.

Could oil prices surge again? Perhaps, but OPEC has plenty of capacity to ramp up production (and will be under immense pressure from the Trump administration to do so). US shale production will also be bolstered by oil prices rising above $70/barrel, and that is another major potential source of supply. Of course, the scale of disruption matters here, as we saw after Russia's invasion of Ukraine. Inflationary pressure from higher oil prices is one of the biggest risks, especially if the conflict expands, but this is not the 1970s and the US is no longer heavily dependent on OPEC for oil.

Diversification Helps, Even More So Now

Diversification has not been a portfolio allocator's friend over the last decade, but it's proven its mettle this year after the Liberation Day tariffs. Uncertainty related to policy has been high this year, but as we have noted throughout the year, during periods of high uncertainty in particular diversification can be your friend. Current geopolitical risks just extend this.

One striking thing that's happened post-Liberation Day is that even as stocks (and bonds) have retraced their moves, the dollar has continued to weaken. During the early moments of the latest Middle East tensions, it was noteworthy that the dollar didn't strengthen as much as it has during previous risk-off situations like these. S&P 500 futures plunged over 1.5% after the news came out, but bond yields didn't drop as much as you'd normally expect given the situation. Within a few hours of the strikes, the US dollar index was up less than 0.3% and the 10-year yield was down just 0.02%-points (and later moved higher). It was clear that the typical “safe haven” bid for the US dollar and US Treasuries was missing. It's hard to say whether there's a structural shift—there's enormous uncertainty around that. But if the dollar continues to weaken, that's going to help international stocks relative to US stocks.

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Do You Know When You Are Using Artificial Intelligence?

Artificial intelligence (AI) is becoming a part of everyday life for many people in the United States, but we don't always recognize it when we interact with it.

A recent Gallup poll asked Americans whether they had used any type of AI-enabled product over the last seven days.

• 36 percent said they had.
• 50 percent of those surveyed said they had not.
• 14 percent weren't sure whether they had or not.

It's not always clear when we're using a product that uses AI. Consider the following list. Which of these do you think relies on AI?

• Wearable fitness trackers that evaluate sleep and exercise patterns
• A chatbot that answers your questions immediately
• Product recommendations that are based on previous purchases
• Security cameras that send alerts when a stranger is at the door
• Email services that remove spam before it gets to your inbox
• Music playlist recommendations from a digital music provider

When Pew Research surveyed more than 11,000 Americans, asking about “common ways they might encounter [AI] in daily life”, these were the examples they gave.

They found that wealthier individuals (52 percent of upper income participants) and those with more education (53 percent of postgrad and 46 percent of college grad participants) were most likely to recognize that all of these examples rely on AI. In addition, younger Americans were more aware of when they interacted with AI than older Americans were. Overall, less than one-third (30 percent) of those surveyed answered the question correctly.

The fact is that most people use AI and interact with it more frequently than they may realize.

“When asked about their usage of six common AI-enabled products (personal virtual assistants, navigation apps, weather forecasting apps or websites, social media platforms, streaming services, or online shopping apps or websites), 99 [percent] of U.S. adults report using at least one of these in the past week, with 83 [percent] saying they have used at least four.”

Ellyn Maese, Gallup

Most Americans interact with AI at least once a week, and probably far more often.

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A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state's attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver's license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

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Did you Know? This Week in History

June 16, 1884: First Roller Coaster in America Opens

On June 16, 1884, the first roller coaster in America opened at Coney Island, in Brooklyn, New York. Known as a switchback railway, it traveled approximately six miles per hour and cost a nickel to ride. The new entertainment was an instant success and by the turn of the century there were hundreds of roller coasters around the country.

Coney Island, a name believed to have come from the Dutch Konijn Eilandt, or Rabbit Island, is a tract of land along the Atlantic Ocean discovered by explorer Henry Hudson in 1609. The first hotel opened at Coney Island in 1829 and by the post-Civil War years, the area was an established resort with theaters, restaurants and a race track. Between 1897 and 1904, three amusement parks sprang up at Coney Island-Dreamland, Luna Park and Steeplechase.

Roller coasters and amusement parks experienced a decline during the Great Depression and World War II, when Americans had less cash to spend on entertainment. Finally, in 1955, the opening of Disneyland in Anaheim, California, signaled the advent of the modern theme park and a rebirth of the roller coaster. Disneyland's success sparked a wave of new parks and coasters. By the 1970s, parks were competing to create the most thrilling rides.

By the mid-1960s, the major amusement parks at Coney Island had shut down and the area acquired a seedy image. In recent decades it has been revitalized, however, and remains a popular tourist attraction. It is still home to the Cyclone, a wooden coaster that made its debut in 1927. Capable of speeds of 60 mph and with an 85-foot drop, the Cyclone is one of the country's oldest coasters in operation today.

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Weekly Focus

"The question is whether any civilization can wage relentless war on life without destroying itself, and without losing the right to be called civilized."

ᴸRachel Carson, Environmentalist

"AI is the new electricity."

ᴸAndrew Ng, AI Pioneer

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