June 23, 2025 •Peter Klingelhofer
Key Events: US strikes Iran while Fed stays on hold
Even though President Trump signaled a preference for giving diplomacy a chance before considering military action against Iran last Friday, the US moved ahead with unexpected strikes against Iran over the weekend.
Last week, the Federal Reserve's Open Market Committee decided to maintain current interest rates. Their economic outlook has remained largely stable over the past three months, though expectations for economic growth have softened. The dot-plot continues to suggest two rate cuts for 2025.[1] On Friday, Fed Governor Waller suggested that rate reductions could begin as early as July, noting that "inflation from tariffs is likely to be short-lived”.[2]
Market Review: Stocks mark time
U.S. equities displayed varied performance last week. Small and mid-cap stocks saw slight gains, while large-cap stocks experienced a modest decline. International and emerging market equities pulled back. Oil prices rose due to heightened geopolitical risks, while interest rates eased slightly.
Outlook: Earnings progress is key to second half
The U.S. equity market continues to demonstrate resilience despite challenges, including tariff-related recession concerns, long-term U.S. debt sustainability issues, a softer U.S. dollar, and escalating tensions between Israel and Iran that now includes US involvement. The labor market shows some softening, but with a low unemployment rate, consumer spending remains robust, fueled by the service-driven U.S. economy. Consumer strength has been a cornerstone of earnings growth for the past three decades, supporting consistent long-term equity returns.
S&P 500 earnings estimates for 2025 have declined about 3.6% since the start of the year, but they have stabilized since mid-May[3] and growth of 7-9% is still in the cards. Given the hurdles that the market has overcome, that’s a notable achievement (especially after factoring in normal estimate degradation as analysts always start the year with optimistic projections).
The U.S. economy’s adaptability has underpinned earnings growth for over 35 years despite numerous crisis events. This resilience supports our continued advocacy for a low-turnover investment strategy focused on diversification, quality, and compelling valuations.
Consistent and resilient earnings growth supports solid long-term compounding for US equities
OneAscent Navigator Outlook: June 2025
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[1] Source: Bloomberg article by John Authers: “War and Food Prices Could heat up Powell’s Summer.”
[2] Source: Bloomberg article by John Authers: “War and Food Prices Could heat up Powell’s Summer.”
[3] Source: Bloomberg data.
[4] Source: Market Returns reference the following indices: Large Cap – S&P 500, Mid Cap Growth – Russell Midcap growth, Mid Cap Value – Russell Midcap Value, Small Cap – Russell 2000, Developed – MSCI EAFE, Emerging – MSCI Emerging Markets, Aggregate – Bloomberg US Aggregate, High Yield – Bloomberg High Yield