Weekly Newsletter 06/13/25

Good afternoon,

The stock markets were down today after finishing mostly higher on Thursday and stalling the slow grind higher we have seen throughout the week. Risk off mood based on the big ramp up in geopolitical tensions as Israel conducted air strikes against Iran's nuclear and military facilities killing senior military officials and nuclear scientists. Israeli Prime Minister Netanyahu said operations will continue for as many days as it takes to remove the threat, while other Israeli officials said it could take weeks. US Secretary of State Rubio noted Israel acted unilaterally. Attack came ahead of a planned sixth round of US-Iran nuclear talks on Sunday…good luck with that. Anytime we have escalated tensions in the Middle East you can be sure oil price spikes are soon to follow, and this time is no different. Crude oil futures spiked nearly 10% today. Part of the spike is attributed to…wait for it…leveraged bets that the price of oil was headed lower after OPEC announced their decision to increase output earlier in the month. Faithful readers of this missive know how we feel about “leverage” in financial markets...the ultimate four-letter word.

However, equity markets have a long track record of largely ignoring geopolitics. Friday's risk-off move also follows some good news this week on the inflation front, which has helped to bolster the case for renewed Fed easing.

Initial jobless claims are unchanged week over week and highest since Oct-24, while four-week moving average of 240.3K highest since Aug-23. Following the data, policy-sensitive 2Y yield fell, suggesting market pricing in steeper Fed rate cut path. Early economic reads noted weakening labor market data and cooling inflation could give Fed a clearer path to cutting rates. However, tariff impact seen in some pockets of the PPI report, including intermediate goods for machine tools, construction materials, and metals, though some of the components that flow into PCE (Fed's preferred inflation measure) were broadly cooler this month.

The May core CPI (Consumer Price Index) came in lower than expected suggesting inflation may be below 3% on an annual basis. Core goods did not reflect much tariff impact, which might suggest retailers taking margin hit instead of passing through price increases to consumers. However, other economists warned companies may be drawing down pre-tariff inventory, creating upside risk in months ahead as companies won't be able to sustain lower prices as base costs rise. Others also pointed out tariff impact showing up in some categories, including toys and appliances, while some said signs of cautious consumer/weaker demand may be emerging in areas like durable goods and autos. From a Fed perspective, some economists said it may be becoming harder for Fed to justify holding with cooling inflation trends, though market still pricing slightly less than 50 bp of cuts through year-end.

Small business optimism increased in May. Taxes ranked as the top problem facing small business owners for the first time since December 2020. They were followed by labor quality, inflation, labor costs, poor sales and government regulation.

The May edition of the NY Fed's Survey of Consumer Expectations (I know you all have a copy) found median inflation expectations declined across all time horizons, with year-ahead expectations dropping to 3.2% from April's 3.6% and five-year expectations down to 2.6% from prior month's 2.7%; added declining levels of disagreement among respondents and that declines broad-based across groups. Noted declines in home-price and commodity inflation expectations as well. Elsewhere, the survey found median year-ahead earnings growth expectations increased to 2.7% in May from prior 2.5%; also found a decline in perceived probability of losing one's job in the next 12 months and increased expectations for finding a new job. The median expected growth in household income rose slightly to 2.7% from April's 2.6%, though remained well below the trailing 12M average. Perceptions of credit access improved and the average perceived probability of missing a minimum debt payment decreased. Finally, households were more upbeat about their current financial situations vs a year ago.

More strategists positive on equity market outlook as Citi raised its year-end S&P 500 price target to 6,300, citing AI tailwinds, broader confidence in corporate adaptability and fundamental stability in rally following tariff-driven selloff. Morgan Stanley reiterated a 6,500 12-month price target. Strategist Mike Wilson said April correction was the end of a much longer correction that began a year ago with peak rate of change on earnings revisions breadth. Goldman Sachs strategist David Kostin said recently market rotations suggest investors pricing in optimistic growth outlook, argued further improvements in soft data could offer upside support for stocks, downplayed some recent market concerns around slower GDP growth, signaling from stocks from pockets of the market including defensive outperformance, weak performance from companies with high operating leverage. Latest updates also come after JPMorgan raised its price target late last week, though a new target of 6,000 around current levels. Argued path of least resistance to new highs absent major policy surprises, sees tailwinds from AI, steady bids from systematic trading as volatility and momentum signals improve, active managers buying dips. Barclays last week also raised its S&P price target, citing peak-trade-policy uncertainty, expectation for more accommodative taxes, regulation. A word of caution, I am weary anytime so many of the “smartest people in the room” are this positive.

As the school year comes to a close across the country the All-American road trip is next. I hope you pack up The Wagon Queen Family Truckster (you think you hate it now but wait ‘til you drive it) and have a fun trip or two planned. The link below contains additional financial resources and articles.

https://www.raymondjames.com/evangelista/resources

“When all else fails, take a vacation.”—Betty Williams

Thank you,

Kyle

KYLE CHRISTIANSON, CFP^®
Financial Advisor
Raymond James & Associates, Inc.
1421 Pine Ridge Rd, Ste 300
Naples, FL 34109
Toll Free (800) 843-2025 | Direct (239) 513-6525 | Main (239) 513-6500 | Fax (239) 596-5474
Kyle.Christianson@RaymondJames.com

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