Market Balancing Act: Fed, Tariffs & Tensions

Fresh news and strategies for traders. SPY Trader episode #1247. Hello, Spy Traders! I'm Money Mike, and it's 12 pm on Wednesday, June 18th, 2025, Pacific time. We're diving into the market action, and it's looking like a cautious day with some interesting shifts after yesterday's dip.The U.S. stock market is showing a mixed to slightly positive vibe today. As of midday, the S&P 500 is up about 0.4%, the Dow Jones Industrial Average has gained around 198 points, and the Nasdaq Composite is up 0.5%. This follows a tougher day yesterday, June 17th, where the S&P 500 closed down 0.8% and the Dow dropped 1.8%, mainly due to those escalating geopolitical concerns in the Middle East.Over the past month, the US500 index has climbed 0.65%, and it's up a solid 9.67% compared to this time last year. The Dow Jones Industrial Average has also seen a healthy 9.47% increase year over year.Now, let's talk sectors. Yesterday, Energy was the only one in the green, while Healthcare and Consumer Discretionary, including names like Tesla, really struggled. But today, we're seeing a shift! Energy is still strong, but Technology and Financials are leading the charge, with bigcap tech making a rebound. Steel stocks are also getting a boost from tariffs. On the flip side, Retailing, Hardware Technology, and Software are among the weaker performers today, and Consumer Discretionary is still feeling the pressure.On the news front, the IsraelIran conflict continues to be a major headache, adding volatility and initially spiking oil prices. We've heard reports of U.S. military assets moving to the Middle East and comments from President Trump hinting at potential U.S. military intervention, which definitely put pressure on stocks yesterday.A huge event today is the Federal Open Market Committee, or FOMC, policy update and press conference. The Federal Reserve is widely expected to keep interest rates steady at 4.25% to 4.50% for the fourth meeting in a row. They're waiting to see how these 'Trump tariffs' play out before considering any rate changes. Everyone's got their eyes glued to the Fed's 'dot plot' and Chairman Powell's remarks for clues on future rate cuts, with some analysts guessing we might see two quarterpoint cuts in the second half of 2025, possibly starting in September. There's also chatter about U.S. bank regulators reviewing adjustments to the eSLR, which could lower capital requirements for big banks and improve their ability to operate in markets like Treasuries.From a macroeconomic perspective, inflation eased to 2.3% in April 2025 but then ticked up slightly to 2.4% in May, still below forecasts. Core inflation has held steady at 2.8%. Despite tariffs, inflation hasn't surged yet, though the Fed remains cautious. The U.S. economy actually contracted by 0.2% in the first quarter of 2025, the first decline in three years, partly due to businesses stockpiling goods ahead of tariffs. But there's an expectation of a sharp rebound in GDP for Q2. And the job market? Nonfarm payrolls increased by 139,000 in May, and the unemployment rate stayed at 4.2%. It's cooling a bit but still pretty stable.On the company side, while there weren't major specific drivers beyond sector movements, we know Tesla contributed to yesterday's Consumer Discretionary weakness. Today, JPMorgan and Goldman Sachs are helping the Dow climb, showing strength in financials. And Gap Inc. recently invested $58 million in robotics for its distribution center, creating 100 new jobs.The market right now is like a highstakes poker game, with geopolitical tensions adding a wild card and the Fed playing a very patient hand. The Middle East conflict is definitely driving some of this volatility, pushing people towards safer assets and boosting oil prices.The Fed's decision to hold rates steady is exactly what we expected. They're trying to figure out the full impact of President Trump's policies, especially those tariffs, and how the economy is really shaping up. That slight bump in inflation in May, even if it's not a huge jump, along with the Fed's worries about tariffs, gives them reason to be patient with rate cuts. Everyone's watching that dot plot because any hint about future cuts will be a huge market mover.That Q1 GDP contraction? It looks like it was more about companies stocking up before tariffs hit, rather than a total collapse in demand. Plus, the expectation of a Q2 rebound and a stillsolid job market means the economy isn't completely off the rails, giving the Fed room to breathe. However, those softening labor market signs, weaker retail sales, and ongoing tariffs are still putting pressure on demand.Sector performance is a great mirror of these dynamics. Energy stocks are up because of the Middle East tensions and oil supply concerns. The rebound in Technology and Financials today could be a sign of underlying strength or just bouncing back from yesterday. Financials, specifically, might get a boost if those eSLR adjustments go through, making it easier for banks to do business. On the other hand, Consumer Discretionary and other sectors hit by tariffs are still struggling, as higher costs and cautious consumers take their toll.Alright, let's talk about how to navigate this tricky market. First off, keep a very close eye on those geopolitical developments. The Middle East conflict is a major source of volatility, and sudden changes could swing oil prices and market sentiment. It's smart to have a diversified portfolio, maybe with a little exposure to defensive assets like gold or shortterm Treasuries, just in case things get bumpy.Second, listen very carefully to what the Federal Reserve says today, especially Chairman Powell's press conference and the dot plot. While a rate hike is super unlikely, any changes in their economic outlook, particularly on inflation or the timing of future rate cuts, will dictate market direction. Be ready for potential shifts in bond yields and where different sectors are heading based on these signals.Third, let's look at specific sectors. Energy might continue to be volatile, but with potential upside if tensions persist—it's a highrisk, highreward play. Technology and Financials are showing resilience today, so focus on companies with strong fundamentals and clear growth stories. For financials, that eSLR review could be a nice tailwind. On the other hand, Consumer Discretionary and Industrials are facing headwinds from tariffs, so be very selective there; look for companies with pricing power or diversified supply chains. And don't count out Healthcare—despite yesterday's dip, it can be a defensive sector in uncertain times, especially quality biopharma or medical tool companies.Fourth, always emphasize quality and strong fundamentals. In this environment of economic uncertainty and tariffs, companies with robust balance sheets, consistent earnings, and strong competitive advantages are your best bet to ride out any downturns.Finally, consider the strength of the U.S. dollar. When the dollar gets stronger due to geopolitical tensions, it can impact the earnings of multinational corporations. Companies with a lot of international exposure might face currency headwinds, so keep that in mind.In a nutshell, the U.S. stock market is in a state of flux, balancing geopolitical risks, Fed policy, and mixed economic data. A cautious, diversified, and fundamentally driven investment approach is your best strategy right now. That's all for today, Spy Traders. Money Mike signing off! Stay safe out there.