Market Review: Dot Plots or Inkblots?
Global equities generally rose during the shortened week, with the MSCI Emerging Markets Investable Market Index leading performance. Following the U.S.-Iran peace agreement, Information Technology stocks rallied on reduced geopolitical risk and continued artificial intelligence optimism. The price of West Texas Intermediate crude oil fell below $80 per barrel, which helped the average price of gasoline in the U.S. to fall below $4.00 a gallon for the first time since early March.
The week’s pivotal event was Federal Reserve (Fed) Chair Kevin Warsh’s first Federal Open Market Committee (FOMC) meeting on June 17, at which the Fed held interest rates steady as expected. However, the interest rate outlook, or “dot plot,” took on a hawkish tone and Chair Warsh announced several taskforce initiatives to review monetary policy. The 2-year U.S. Treasury yield rose 13 basis points that day, and the yield curve (i.e., the spread between short- and long-term interest rates) declined to the lowest level since April 2025.
Market Outlook
We maintain our modest overweight to equities, which is supported by healthy spending, a stable labor market, strong earnings expectations and increasing productivity. The prospect of Fed tightening could be a market headwind, so we expect that investors will be focused on inflation signals. So far, inflation pass-through has been modest and oil prices are falling faster than many anticipated.
Chart of the Week
The latest FOMC interest rate projections surprised many investors as Fed members shifted to a hawkish view of rate actions.
While the Fed remains committed to its 2% inflation target, prices have been rising given the uncertain geopolitical backdrop.
Tighter financial conditions could lead to higher market volatility, which continues to support diversified portfolios.
