Stock Market Update

[BRIEFING.COM] If one didn't know any better, today was just a run-of-the-mill day for the stock market. The major indices were little changed, but it wasn't an ordinary day. Today was a day filled with geopolitical intrigue and wonderment about the Federal Reserve's outlook.

The Israel-Iran conflict took precedence as an early driver. Stocks moved higher, keying on a remark from President Trump, who said there is still time for Iran to negotiate. The idea that a diplomatic solution has not been written off, despite the president's take yesterday that his patience with Iran is wearing thin, was a welcome headline consideration.

It would be remiss not to add, though, that the president also said Iran cannot have a nuclear weapon and that later this week or next week will be "big." That view mitigated some of the excitement around the first headline, yet stocks held their ground in positive territory leading up to the FOMC decision and release of the Summary of Economic Projections (SEP) at 2:00 p.m. ET. 

As expected, the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%, but the SEP was confounding in that it showed a median estimate for two rate cuts before the end of the year, the same as in the March SEP, but an increase in the median estimate for PCE inflation to 3.0% from 2.7% and an increase in the median estimate for core PCE inflation to 3.1% from 2.8% for 2025. The median estimate for real GDP growth, meanwhile, was lowered to 1.4% from 1.7%, and the median estimate for the unemployment rate bumped up to 4.5% from 4.4%.

Fed Chair Powell's overarching message in the press conference, which began at 2:30 p.m. ET, is that uncertainty remains elevated and that the Fed needs more time to assess incoming data before determining its next policy move. He also expressed an expectation for some meaningful inflation in coming months on account of the tariffs.

Stocks retreated from higher levels, and Treasury yields rose, in the wake of the FOMC decision and press conference, but the reaction function was fairly constrained given the magnitude of the event. The S&P 500 finished the day flat, the 2-yr note yield settled unchanged at 3.95%, and the 10-yr note yield settled the session up one basis point at 4.40%.

In brief, while buying efforts faded, there wasn't a lot of conviction on the part of sellers. 

Sector performances reflected the reserved action. Four sectors finished higher. The information technology sector (+0.4%) was the biggest gainer. Seven sectors finished lower, with energy (-0.7%) and communication services (-0.7%) in a dead heat for biggest loser, only neither was down that much.

WTI crude futures traded above $75.00/bbl earlier in the day but settled up just 0.4% at $73.56/bbl, coming off the boil as the president dangled the carrot of a possible diplomatic solution.

In other developments, the CBOE Volatility Index declined 6.2% to 20.26; initial jobless claims remained at a relatively low 245,000, and housing starts in May fell to their lowest level in five years.

• S&P 500: +1.7% YTD
• Nasdaq: +1.2% YTD
• DJIA: -0.9% YTD
• S&P 400: -3.1%
• Russell 2000: -5.3% YTD

Reviewing today's economic data:

• Initial jobless claims for the week ending June 14 decreased by 5,000 to 245,000 (Briefing.com consensus 253,000), while continuing jobless claims for the week ending June 7 decreased by 6,000 to 1.945 million.
  • The key takeaway from the report is that it covers the week in which the survey for the June employment report is conducted, and with initial jobless claims still at a relatively low level, there will be a basis for economists to expect another decent gain in nonfarm payrolls (all things considered).
• Housing starts declined 9.8% month-over-month in May to a seasonally adjusted annual rate of 1.256 million units (Briefing.com consensus 1.356 million), while building permits declined 2.0% month-over-month to a seasonally adjusted annual rate of 1.393 million (Briefing.com consensus 1.411 million).
  • The key takeaway from the report is that housing starts are weak, sitting at their lowest level since May 2020; moreover, a 2.7% month-over-month decline in single-unit permits doesn't connote an encouraging outlook for starts.