By Dennis Karpenko, CFA®
Broad markets had another strong month in June, with major U.S. and global indexes positive to close Q2 of 2025. Although moderating inflation figures and strong labor markets in both the U.S. and Europe have provided support for positive investor sentiment, there remain concerns with central bank rate trajectories around the world, namely the U.S. Federal Reserve.
Equities
Despite a jump in geopolitical risks, escalated by the Iran-Israel conflict, equity markets posted a positive month. Strong corporate earnings, optimism in rapidly developing AI-driven industries, and encouraging news surrounding trade deals have contributed to growth in both U.S. and international markets. The S&P 500 returned 5.09% for the month of June (reaching a new all-time high) and is up a total of 6.20% for the first half of 2025.
All sectors except for Consumer Staples had a positive return for the month of June – Technology led all of the sectors with a 9.85% return. Although not outpacing U.S. markets like they had earlier in the year, international indexes, both developed and emerging markets, also had gains, posting 2.22% and 6.14% respectively.
Fixed Income
Major fixed-income indexes also had a positive month in June. The Two-year/Ten-year treasury yield curve remains steep with longer-dated rates returning higher yields – a big departure from the previously inverted-yield curve (which stood inverted for over two years until fall of 2024).
Investment-grade corporate bonds appear attractive despite low spreads with yields near the high of their 15-year range (around 5%). And despite a shaky start to the year, municipal bonds are getting more attractive due to a few compounding factors: lower issuances to be expected in the near future, higher general credit quality with upgrades outpacing downgrades in the municipal space, and the added attractiveness for those seeking higher tax-equivalent yields.
Economic Recap
The Federal Reserve (Fed) held its target federal funds rate steady in the 4.25%-4.50% range during their June meeting. Despite mounting pressures, they have indicated no intention to lower rates until there is a perceived level of stability with the recent slew of tariffs; the Fed still anticipates 1-2 rate cuts in the calendar year.
Other notable economic figures:
- U.S. Labor Force Participation Rate of 62.30% (down from 62.40% in May)
- U.S. Unemployment Rate of 4.10% (down from 4.20% in May)
- U.S. Inflation Rate of 2.67% (up from 2.35% in May).
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
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