June – No way but up
Last month, in the title of our monthly letter, we urged you to stay invested (May – Don’t go away just yet). Armed with hindsight, we can now say that it was the right call. Global stock markets, with the exception of Europe and Switzerland, had a stellar month, led by the Nasdaq (+6.6%) and emerging markets ex China (+6%), thereby taking the lead in YTD performance.
This is the type of performance that typically requires major positive news. But what we witnessed in June was far from positive, especially on the geopolitical front. First the Ukraine-Russia peace talks collapsed. Israel attacked Iran, which led to a collapse in nuclear negotiations with Iran, and a back-and-forth retaliations, eventually bringing the US into the conflict, followed by a swift ceasefire Add to this deadlines on tariff pauses approaching with little progress to speak for and finally, a disastrous bill (Big Beautiful Bill) for the US budget, just passed in the Senate at the time of writing.
Volatility experienced minor bleeps, but the stock markets seem immune to bad news and the only way is up so far.
Data source : Bloomberg
The May reading of the US inflation is up for the first time in four months, though modestly so at 2.4% year on year. The upcoming tariffs break may give us some clarity on where inflation is heading and by the same token, where interest rates will be, come year end. Although the Fed hasn’t acted yet, yields are moving quite a bit lower, and the USD is down 10% YTD, on the back of speculations that the next Fed chair will likely be someone aligned with President Trump’s wish for lower interest rates.
One might wonder why Trump is pushing so hard for lower interest rates when company profitability is healthy, the population is considered fully employed, GDP growth is decent and leading indicators such as the composite PMI is on its 29th consecutive month of expansion. One explanation is the skyrocketing US debt, which would be further exacerbated by the Big Beautiful Bill, and the amount of yearly budget going to service that debt. Lower rates would help reduce the impact at least in the short term.
Across the pond, the euro area inflation settled at 2% year on year, the ECB’s target rate. This is in the context of the central bank taking rates down from 4.5% to 2.15% over the same time period. Though given the magnitude of the rate decrease, the GDP growth rate of 0.6% and neutral composite PMI is rather disappointing. A lot of hope is placed on Germany, but so far the results have been underwhelming, and we have been warned that the full impact may not be felt until 2027.
Our summary recommendations
Mathematics demonstrate the importance of not missing the best 10 days of the equity market over the past 30 years or see the return cut in half. We did not try to time the market when things were getting choppy this year, and remained invested instead, while using dry powder to enter at more attractive levels and structured volatility dependent products. With hindsight again, that was the right move.
At the moment, we are in wait-and-see mode. The Big Beautiful Bill as well as the tariff negotiations should be coming to an end in the coming weeks and it will hopefully give us more clarity.
Chart of the month
Oil is the asset that has been reacting the most with the headlines coming out of the Middle East in June, although surprisingly not in direct connection with the dates of the events. Israel attacked on June 13, but most of the price increase happened prior. Then the price dropped sharply, after the US bombing, to finally stabilize once the ceasefire was announced.
The moves were quite violent, with the crude going up 23.6% from the beginning of the month to the high of June, before retracing down -13.3% from high to month end.
Source: Bloomberg
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