WEEK IN PERSPECTIVE: Markets Waver Amid Geopolitical Tensions and Central Bank Decisions

The trading week was shortened but anything but quiet, with major indices ending largely unchanged as investors weighed developments across geopolitics, central bank policy, and economic data.

Early in the week, concerns mounted over the Israel-Iran conflict, particularly after President Trump called for Iran’s “unconditional surrender” and signaled dwindling patience. However, by week’s end, he struck a more measured tone, suggesting negotiations remained possible and that a final decision on U.S. involvement would come within two weeks.

Central banks, meanwhile, held steady. The Bank of Japan kept its policy rate at 0.50%, the Federal Reserve maintained the fed funds rate at 4.25–4.50%, and the Bank of England also left its rate unchanged at 4.25%.

The Fed’s Summary of Economic Projections revealed rising expectations for inflation (both headline and core PCE) and unemployment in 2025, alongside a lower outlook for real GDP growth. Still, the median forecast continued to anticipate two rate cuts before year-end.

Chair Powell reiterated a cautious, wait-and-see approach, citing a resilient labor market and concerns that tariffs could push inflation higher. He projected a noticeable increase in inflation in the coming months due to these tariffs.

Despite this, Treasury yields ticked lower across the curve. On Friday, Fed Governor Waller stirred conversation by downplaying the long-term inflationary impact of tariffs and suggesting a possible rate cut in July. The market response was modest, with futures pricing in a 16.5% chance of a July cut—up slightly from 12.5%.

Sector Performance

Only three sectors posted gains:

• Energy (+1.1%), tracking higher oil prices

• Information Technology (+0.9%)

• Financials (+0.8%)

Meanwhile, Health Care took the biggest hit (-2.7%), followed by Communication Services (-1.7%) and Materials (-1.2%). Consumer Discretionary (-0.7%) also lagged after May retail sales fell 0.9% overall and 0.3% excluding autos.

Major Index Performance

Index	Weekly Change	YTD Change
S&P 500	-0.2%	+1.5%
Nasdaq	+0.2%	+0.7%
DJIA	Flat	-0.8%
S&P 400	+0.6%	-3.1%
Russell 2000	+0.4%	-5.4%

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