Market Crossroads: Geopolitics & the Fed

Fresh news and strategies for traders. SPY Trader episode #1246. Welcome back to Spy Trader, your daily dose of market insights from yours truly, Market Maverick Mike! It's 6 am on Wednesday, June 18th, 2025, Pacific time, and we're diving deep into the movements shaping your portfolio. We've got a lot to unpack today as the market navigates some tricky waters. Let's get right into it!The US stock market is currently experiencing a pretty mixed and cautious sentiment. On Tuesday, June 17th, we saw major US indices decline. The S&P 500 Index, or US500, is sitting at 5982 points, after losing 0.01% from the previous session and falling 0.84% on Monday. The Dow Jones Industrial Average closed 0.7% lower, and the Nasdaq Composite fell 0.91%. These declines came after a bit of a rebound on Monday and are happening right before the Federal Reserve's big monetary policy decision.Breaking down the sectors, Tuesday was tough with ten out of eleven S&P 500 sectors in the red. Energy was the sole gainer, getting a boost from a spike in oil prices due to escalating geopolitical tensions in the Middle East. Healthcare lagged, down about 1%, with biopharma specifically hit by news of potential advertising restrictions. Consumer Discretionary was weaker, with Tesla down about 3%, and homebuilders seeing declines after Lennar's results and weaker housing data.But the real headlinegrabber for sector performance was solar stocks. They were absolutely hammered, plummeting after the Senate's budget bill didn't offer much relief from cuts in cleanenergy tax credits. We're talking Enphase Energy down 24%, First Solar dropping 18%, SunRun plunging a whopping 40%, and SolarEdge Technologies sliding 33% on Tuesday. On the brighter side, technology stocks, including big names like Microsoft, Nvidia, and Apple, generally advanced on Monday. Advanced Micro Devices, or AMD, surged nearly 9% after analysts upgraded the stock following their 'Advancing AI' event.Defense contractors like Lockheed Martin and Northrop Grumman saw declines on Monday, after surging last week due to the IsraelIran conflict.Speaking of that conflict, geopolitical tensions are a major concern. Daily missile exchanges have occurred since Israel's air attacks on Iran's nuclear facilities on June 13th. This has created a 'riskoff' sentiment, pushing up oil prices and safehaven assets like the US dollar and gold.President Trump's recent call for Iran's 'unconditional surrender' and a potential strike against Supreme Leader Khamenei have further escalated things. Historically, geopolitical conflicts often have a limited lasting impact on the market, but the immediate reaction can be sharp.Then there's the Federal Reserve decision. Investors are bracing for it, with most expecting interest rates to hold steady. The market will be laserfocused on the Fed's forward guidance, especially with persistent tariff uncertainty and those rising geopolitical tensions in the mix. There's an expectation that the Fed will hold off on rate cuts throughout 2025 before possibly starting again in 2026.Retail sales for May plunged by a worsethanexpected 0.9%, raising worries about consumer demand, although the 'control group' for GDP calculation did rise a bit. Jobless claims held steady, and inflation data was softer than expected in May, with the Consumer Price Index at 2.4% annually, just slightly above the Fed's 2% target. However, tariffs could put upward pressure on prices in the coming months.From a broader economic perspective, US real GDP decreased at an annual rate of 0.2% in the first quarter of 2025. This means a slowdown is expected for overall economic growth this year. The labor market is healthy for now, though job growth slowed in May, and unemployment is anticipated to increase slightly. On the company front, Jabil, a manufacturing services company, surged to a record high after beating earnings estimates and citing accelerating AIdriven demand as a key growth engine. Tesla, as I mentioned, was down about 3%, and AMD saw that nice 9% surge.So, let's talk analysis and what this all means for you, the everyday trader. The US stock market is currently in a state of flux, primarily driven by geopolitical uncertainty and anticipation around monetary policy. The escalating IsraelIran conflict has injected significant risk aversion, leading to a 'flighttosafety' mentality. Investors are moving towards assets like oil, the US dollar, and gold, while shying away from equities, which explains those broad market declines.The upcoming Federal Reserve meeting is another critical factor. While a rate hold is widely expected, the market is highly sensitive to any forward guidance regarding future rate cuts and the Fed's assessment of economic conditions. The slowerthanexpected fight against inflation and the potential inflationary impact of tariffs further complicate the Fed's decisions and market sentiment.Recent economic data gives us a mixed picture. The decline in real GDP in Q1 2025 and softer retail sales for May raise concerns about consumer demand and overall economic growth. However, the 'control group' within retail sales, a key component for GDP calculation, showed some resilience. The relatively healthy labor market, despite slowing job growth, provides some underlying support.And of course, those sectorspecific events are playing a huge role. The sharp decline in solar stocks due to unfavorable tax credit news highlights how vulnerable certain sectors can be to legislative changes. Conversely, strong earnings and AIdriven demand are propelling companies like Jabil, showcasing continued strength in specific technologyrelated areas.Alright, for our concrete recommendations. Given this current environment, a cautious and diversified approach is definitely advisable, with a focus on companies with strong fundamentals and resilience to macroeconomic headwinds.First, monitor geopolitical developments closely. The IsraelIran conflict is a big wildcard. Consider reducing exposure to highly volatile or geopolitically sensitive sectors until there's greater clarity. On the flip side, the energy sector may continue to see support due to elevated oil prices, but remember, this is directly tied to instability and is inherently volatile.Defense stocks, while initially benefiting, have shown recent declines, suggesting things are complex.Second, position for Federal Reserve policy. If the Fed signals a more hawkish stance, like delaying rate cuts further due defensive sectors such as Utilities and Consumer Staples might offer relative stability. If the Fed's commentary is more dovish than expected, indicating a willingness to cut rates sooner, growth sectors, particularly technology, could see a rebound. But for now, with a prolonged rate hold expected, a defensive or balanced approach seems smart.Third, focus on quality and fundamental strength. In an uncertain economic climate, companies with strong balance sheets, consistent earnings, and competitive advantages are better positioned to weather volatility. Prioritize companies with strong free cash flow, low debt, and a proven track record of profitability. This applies across all sectors.Fourth, look for selective opportunities in technology and AI. Despite recent market dips, the longterm growth drivers in technology, particularly AIdriven demand, remain strong, as evidenced by Jabil's performance and AMD's recent surge. Look for opportunities in companies at the forefront of AI innovation and adoption that have demonstrated robust earnings and positive outlooks. Just be mindful of valuations, as some AIrelated stocks may already be priced for significant growth.And finally, reevaluate your sector exposure. Given the current weakness in Consumer Discretionary and Solar, you might consider if these sectors present buying opportunities on dips, if their longterm outlooks remain positive and the current headwinds are temporary. However, for solar, this depends heavily on future legislative support. In healthcare, focus on those resilient subsectors like hospitals and distributors rather than those facing advertising restrictions.Always remember to stay diversified. While specific sector analysis is crucial, broad diversification across different asset classes and sectors remains a cornerstone of risk management. Ensure your portfolio isn't overly concentrated in any single sector or asset class. Consider a mix of equities, fixed income, and potentially some alternative investments, depending on your risk tolerance and financial goals.In summary, the US stock market is navigating a complex landscape. While there's underlying longterm growth, shortterm volatility is likely to persist due to geopolitical tensions and the ongoing assessment of economic data and monetary policy. Prudent investors should prioritize quality, maintain diversification, and remain agile in their investment strategies. That's all for today's Spy Trader. This is Market Maverick Mike, signing off! Trade smart, not hard, and I'll catch you next time.