June 21, 2025 Market Update

U.S. stocks ended the week mixed as investors reacted to the Federal Reserve’s decision to leave interest rates unchanged, growing concerns over the U.S. fiscal deficit, the escalating trade dispute between the U.S. and the rest of the world, and rising tensions in the Middle East.  Large-cap indices slipped slightly, while small-cap stocks continued to struggle amid renewed concerns about borrowing costs and rising prices.

Credit markets showed little movement, though short-term yields remain elevated as markets adjusted expectations for future rate changes.  Economic data released earlier in the week was largely in line with expectations.  The U.S. dollar strengthened modestly against a basket of major peers.

The interplay between economic strength and monetary policy remains the central focus for both equity and fixed income investors.  With inflation cooling and labor markets remaining tight, investors are weighing the challenge of balancing the prospects for economic growth and the potential for rising prices—keeping both stock and bond markets searching for a persistent direction.

The Federal Reserve opted to leave interest rates unchanged this week, maintaining its benchmark rate in a range between 4.25% and 4.5%.  This decision was widely expected, but Mr. Market watched closely for clues about the timing of future rate cuts.  According to the Fed’s updated projections, 10 of the 19 officials on the committee still anticipate at least two rate reductions before the end of the year.

The path forward remains data-dependent.  While inflation has moderated from its peaks, the Fed is looking for more convincing signs that price pressures—particularly those related to recent tariff announcements—are contained.  A softening labor market could also prompt policy easing, but employment data has remained resilient so far.

For investors, the Fed’s wait-and-see approach means that interest rates may stay higher for longer than some had hoped.  That could continue to pressure rate-sensitive areas like housing and small-cap stocks, while supporting yields on cash and short-term bonds.  Looking ahead, if rate cuts do materialize later this year, they could boost stocks and lower borrowing costs—especially if inflation continues to trend lower without a sharp slowdown in hiring or growth.

That’s all for now.  Have a great weekend and invest wisely my friends.