Markets Play Waiting Game on Tariffs, Budget, Iran
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, June 23rd. Major indices are holding relatively strong as the end of June nears, with the S&P 500 hovering just below 6,000 at a mere 3% off its all-time high.

The broader market declined slightly last week, however, and upward momentum seems to be stalling. At the same time, the SIBO Volatility Index, or VIX, edged below 20 on Friday, suggesting investor fear is still muted despite geopolitical concerns and continued uncertainty around the Trump administration's tariff negotiations.

It's possible that coming weeks could bring more volatility thanks to several major deadlines hanging overhead. President Trump gave Congress until July 4th to settle on a budget bill, but the Senate and House measures have differences that require additional debate. Then there's Trump's July 9th deadline for U.S. trading partners in the EU to make deals or face elevated tariffs. The administration has hinted this could be extended.

Another date to watch is next Thursday, July 3rd, which will mark two weeks after Trump said he'd take two weeks to decide whether to enter the conflict between Israel and Iran. Then there's the ever-looming debt ceiling specter. The Treasury Department previously said the U.S. will likely reach this in August unless and until Congress lifts it.

Turning to the escalating conflict in the Middle East, talks between Iranian and European officials began Friday in Geneva, Switzerland, though Iran's foreign minister said the country is not seeking negotiations with anyone, especially not the United States.

While expectations are low that Iran will unconditionally surrender, any constructive progress with Iran negotiations could provide a bit of relief rally for stocks, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. This week, earnings news starts to pick up slightly, with KB Home reporting tonight after the close and FedEx issuing its report tomorrow afternoon.

The shipping giant disappointed investors last quarter when it lowered its earnings outlook on continued weakness and uncertainty in the U.S. industrial economy. Its report will be scrutinized tomorrow for any signs of improved sentiment. Micron, Walgreens, and Nike will report later in the week to offer some insight into semiconductor trends and retail demand.

On the economic front, in addition to June consumer confidence and the final estimate for the first quarter gross domestic product, or GDP, investors will hear twice this week from Fed Chairman Jerome Powell when he delivers his semi-annual monetary policy report to Congress. He'll speak before the House tomorrow and the Senate on Wednesday.

His comments may provide some additional clues about the economy and the rate path following what were perceived as relatively hawkish remarks in his press conference following last week's Fed meeting. The Fed kept rates unchanged for the fourth meeting in a row, and Powell cited the unknown impact of tariffs on inflation as one factor possibly keeping the Fed from trimming soon.

However, if past practice holds, Powell may not venture far beyond what he told the media last Wednesday. Fed Governor Christopher Waller told CNBC Friday that a rate cut could come as soon as next month, citing concerns about the labor market and noting that tariffs would spark a one-off level effect on prices.

Waller's opinion contradicted Powell's, who said last week, the size of the tariff effects, their duration and the time it will take are all highly uncertain. Meanwhile, Trump again admonished Powell for keeping rates steady, advocating for an unprecedented cut of 2.5 points and accusing the central bank of costing the U.S. hundreds of billions of dollars. Several Treasury auctions and additional Fed speakers pepper the week ahead.

Trading volume was relatively thin on Friday between the Juneteenth holiday and the weekend, and declining issues outpaced advancers by a slight margin. Volatility backtracked almost 7%, and market breadth was slightly bullish, with roughly 63% of S&P 500 stocks trading above their respective 50-day moving averages.

Citing congestion around the S&P 500 6,050 to 6,100 level, however, Schwab's Peterson suggested perhaps some healthy consolidation is needed before the index can muster another push towards all-time highs, and near-term technical assessment is cautious for the meantime.

Odds of a rate cut in July were just 14.5% late Friday, according to the CME FedWatch tool, up from 10% earlier in the day. Chances of a cut in September rose to 72%, and Fed officials continue to suggest a total of two cuts by the end of the year.

With inflation expected to remain elevated, that projection may be reduced to one or even none over the course of the next few meetings, said Cathy Jones, chief fixed-income strategist at Schwab, following last week's FOMC decision. After gaining more than 25 percent during the first two weeks of June, crude oil took a breather on Friday as Europe and Iran held talks, while the White House remained hopeful for a successful negotiation.

At the pumps, gas prices rose an average of six cents nationwide as summer travel kicks off amid uncertainty in the Gulf. This indicator is another for central bankers to watch, given fuel costs' impact on consumer sentiment and inflation.

Sector movement was measured on Friday, with most industries staying within a percent of break-even. Consumer staples, energy and utilities outperformed slightly, and the most significant laggard, communication services, shed over a percent amid drops in heavily weighted meta and alphabet. For the week, all sectors were in the red aside from energy, which gained about 2.5%.

The Dow Jones Industrial Average gained 35.16 points Friday or 0.08% to 42,206.82. The S&P 500 Index slipped 13.03 points or 0.22% to 5,967.84. And the Nasdaq Composite fell 98.86 points or 0.51% to 19,447.41.

For the week, the Dow Jones Industrial Average rose 0.02%, the S&P 500 fell 0.15%, and the Nasdaq rose 0.21%. This has been the Schwab Market Update Podcast.

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