Tariffs and Tensions: Why Investors are on Edge this Week
Week in Review #357 | June 16-20, 2025
Summing Up The Week
Despite uncertainty coming on from multiple fronts, the stock market held up remarkably well during this shortened trading week. The escalating conflict between Israel and Iran remains top of mind as the U.S. has enacted a two-week deadline before deciding whether or not to enter the war.
Meanwhile, consumers are pulling back on spending over concerns about tariffs and homebuilder sentiment has dropped to lows not seen since the pandemic. There's certainly quite a bit of unknowns out there keeping market participants on their toes.
Let's take a deeper dive into the news that moved markets this week...
Market News
Israel-Iran conflict escalates
Despite the market rallying on Monday on beliefs that the Israel-Iran conflict would be settled shortly, stocks sold off on Tuesday when President Donald Trump signaled the conflict was escalating, reported CNBC.
Trump left the Group of Seven (G7) summit he was attending, stating that his early departure was due to “much bigger” things than planning a ceasefire between Tel Aviv and Tehran, shortly after he urged people to "immediately evacuate Tehran."
Consumers pull back out of fear of rising prices
On Tuesday, retail sales fell 0.9% in May which was worse than the 0.6% expected as consumers pulled back on spending, reported CNBC. Even adjusted for seasonality, the reduction in spending indicates consumers are concerned over the tariffs and rising prices.
Whereas consumers front-ran the tariffs before May, they are now holding off unless they can get the prices they want. "Americans bought cars in March ahead of tariffs and stayed away from car dealerships in May. Families are wary of higher prices and are being a lot more selective with where they spend their money," said Heather Long, Chief Economist at Navy Federal Credit Union. "People are hunting for deals and aren’t eager to buy unless they see a good one."
Homebuilder sentiment nears pandemic lows
On Tuesday, the Homebuilder Sentiment Survey showed a drop of 2 points in June to 32, almost near the pandemic lows, reported CNBC. The National Association of Home Builders (NAHB) teams up with Wells Fargo to produce the index with anything below 50 being considered negative.
The combination of high interest rates and tariff concerns have left buyers uninterested in the housing market. "Buyers are increasingly moving to the sidelines due to elevated mortgage rates and tariff and economic uncertainty," said Buddy Hughes, NAHB Chairman and a homebuilder from Lexington, North Carolina, in a release. "To help address affordability concerns and bring hesitant buyers off the fence, a growing number of builders are moving to cut prices."
Even with rising inventory levels, homebuyers are holding off in hopes prices will come down as well as the potential for interest rate cuts. "Rising inventory levels and prospective home buyers who are on hold waiting for affordability conditions to improve are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets," said Robert Dietz, Chief Economist at the NAHB. "Given current market conditions, NAHB is forecasting a decline in single-family starts for 2025."
Fed holds rates the same, sees 2 more cuts this year
On Wednesday, to what should have been the surprise to no one, the Federal Reserve announced its decision to keep the benchmark interest rate the same and that the FOMC sees two more cuts later in 2025, reported CNBC. Despite President Trump jawboning Fed Chair Jerome Powell on social media and in interviews at every opportunity, Powell and the rest of the Fed decided not to cut rates, just as the market anticipated.
The committee continues to point to the cloudy outlook for tariffs and a potential trade war as the reason to pause. "Uncertainty about the economic outlook has diminished but remains elevated. The Committee is attentive to the risks to both sides of its dual mandate," the committee said in a statement.
During his press conference following the meeting, Powell reiterated the committee's sentiment, "For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policies."
Trump sets 2-week deadline for Iranian strike
On Thursday evening, President Donald Trump announced he would not make a decision about possibly entry into the Israel-Iran conflict for two weeks, reported CNBC. Officials from Europe and Tehran plan to hold talks in Geneva in an attempt to de-escalate the ongoing conflict with Israel.
Iran has been developing a uranium enrichment program which their officials claim is for energy reactors, not a nuclear bomb, however the rest of the world is nearly certain those claims are false. Israel likely doesn't have the necessary munitions to take out Iran's enrichment facilities which are buried deep underground, however the U.S. military does have the bunker-busting bombs that would be able to do the job.
However, should the U.S. enter the fray, the actions could have dramatic consequences on relations with other Middle Eastern countries. "Based on the fact that there’s a substantial chance of negotiations that may or may not take place with Iran in the future, I will make my decision whether or not to go within the next two weeks," said Trump, according to a statement read out on Thursday by White House Spokesperson Karoline Leavitt.
Next Week's Gameplan
Next week brings more potentially market-moving catalysts with the S&P flash services and manufacturing PMI on Monday followed by the Consumer Confidence survey results on Tuesday. On Wednesday, we get to hear about new home sales for May with GDP and durable goods orders on Thursday.
However, the big datapoint comes on Friday in the form of the Personal Consumption Expenditures (PCE) index for May, the Federal Reserve's preferred gauge of inflation. While the CPI and PPI showed no inflation surprise for May, the PCE doesn't always perfectly align, so we might see inflation or we could see similar disinflation that we saw earlier in June from May's CPI and PPI.
So, we've got another exciting week ahead and I'll meet everyone back here on Friday to discuss the news that made the markets move, my friends!
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