Weekly Newsletter June 16th to June 20th
RECAPPING LAST WEEK
U.S. equity indices managed uneven results as investors monitored the escalating Israel-Iran conflict along with the Federal Reserve’s latest decision on interest rates. The Nasdaq Composite and Russell 2000 indices rose less than 0.5% while the S&P500 fell marginally. S&P500 sector returns were also mixed with no standouts among the winners and healthcare slipping 2.5%. Technology faded into the weekend after a report surfaced that the U.S. is considering terminating waivers that allow some chipmakers to ship to China. Crude oil prices ended higher by 1% in volatile trading, giving up earlier gains after the White House indicated it would allow time for a diplomatic solution before considering entering the Middle East fray. Gold futures slid 2% while Bitcoin fell the same amount despite Senate passage of the GENIUS Act, a regulatory framework for stablecoins that could promote wider cryptocurrency usage. U.S. Treasury yields eased after the Fed unanimously voted to keep interest rates steady but signaled that rate cuts are still likely later this year. In its updated economic projections and dot plots, the FOMC anticipates lowering rates by 50 basis points by year end while forecasting slower GDP growth and higher inflation. Chairman Powell cautioned that any moves will be data-dependent, and he still expects “meaningful” inflation from tariffs. On Friday, FOMC Governor Waller countered that view, saying he doesn’t expect tariffs to boost CPI significantly and the Fed should consider easing rates as soon as next month rather than waiting for a sharp deterioration in the U.S. labor market. Last week’s economic releases indicated signs of slowing with U.S. retail sales falling more than expected in May while the Labor Department’s weekly jobless claims report revealed an uptick in layoffs. Manufacturing activity in the Northeast showed little improvement this month, according to the Fed’s regional surveys. Homebuilder confidence fell to the lowest level in two and a half years, with buyers stymied by high mortgage rates and economic uncertainty. Permits for future home construction of single-family homes dropped 2.7% in May. Overseas, the Bank of Japan left its benchmark rate unchanged while moving to slow the pace of reduction in bond purchases to keep long-term rates from rising too quickly. Japan’s government also plans to reduce sales of ultra-long bonds more than initially planned to soothe investor concerns. The country’s core inflation reached a two-year high last month, keeping pressure on the central bank to raise short-term rates despite risks from U.S. trade policy. In China, retail sales jumped 6.4% YoY in May, but industrial production and fixed-asset investment missed expectations as the real estate slump continued. The Bank of England held rates steady at 4.25% with a closer-than-expected vote that left the door open to a cut in August. British inflation cooled last month to an annualized 3.4% while services CPI dropped to 4.7% from 5.4%. Retail sales in the UK plunged 2.7% MoM and 1.3% YoY in May, dimming prospects for economic growth.
THE WEEK AHEAD
While the world anxiously awaits developments in the Middle East now that the U.S. has become directly involved in the conflict, a busy week of economic data and Fed speak is on tap. First up are today’s global flash PMI releases. Business sentiment sank earlier this year due to escalating trade wars, but bright spots have emerged in developed economies—specifically in U.S. services and Eurozone manufacturing. Although consumer price pressures have remained subdued, the recent spike in oil prices and slowing spending trends from U.S. consumers will put Friday’s core PCE price index report in focus. Now that the Fed’s quiet period has ended, there will be numerous appearances from committee members this week to expand on monetary policy thoughts. Chairman Powell’s two-day testimony before Congress begins on Tuesday. The rest of the domestic economic calendar includes housing data, consumer confidence, trade balance figures, and a revised consumer sentiment reading. A few corporate earnings announcements to note throughout the week are General Mills, KB Home, Micron Technology, and Nike. On the international agenda, in addition to the flash PMI releases, there are inflation updates in Canada, Japan, and Australia, along with business and consumer sentiment surveys from Germany.
CHART OF THE WEEK
Is healthcare turning a corner?
The healthcare sector has underperformed the S&P500 index since the end of 2022, when the broad market went into “risk-on” mode. Healthcare has historically been a more defensive sector, so the lag in performance is not surprising, but the magnitude is notable. The S&P500 rose 24% in 2024 and is up slightly this year. Healthcare, represented by the S&P500 Health Care Sector index ($SP500#35), was up less than 2% in 2024 and is lower in 2025, in large part due to threats of pharmaceutical import tariffs. Healthcare is a very broad sector, but pharmaceuticals like Pfizer, Eli Lilly, Bristol Myers Squibb, and Abbvie have been the biggest drag on the index. That said, beaten-down sectors tend to eventually garner investors’ attention, and some initial technical reversal signs have emerged. The first was the bullish MACD divergence in mid-May followed by a break above down-sloping price resistance. Secondly, relative strength versus the S&P500 bottomed after the May low, although an uptrend has not yet developed to inspire further confidence. Last of all, the broad support range from $1,510 to $1,530—highlighted by the gray area below the index’s current price—lends credence to a base building that might lead to a turnaround for the sector. Price tends to lead fundamentals, and other technical indicators such as moving averages may eventually confirm a better outlook for healthcare stocks.
Source: Charles Schwab Corporation
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