Investment environment overview 06/2025

June marked another strong month for global equity markets, with major indexes hitting fresh all-time highs, extending May’s rebound following April’s tariff-induced selloff. Investors continued to remain cautiously optimistic amid persistent inflation concerns and ongoing geopolitical uncertainties —looming tariff deadlines, unsettled trade negotiations, and a 12-day war in the Middle East during the month.

The S&P 500 and Nasdaq Composite both posted all-time highs on June 30 and ended the month up 4.5% and 6.6%, respectively. However, U.S. equities remain historically expensive and are getting pricier, with most stocks trading near the top of their long-term valuation ranges.

Bitcoin posts new records, Hong Kong leads China

Chinese equities showed relative strength during the month as signs of a slower decline in manufacturing, an uptick in domestic orders, and continued strength in infrastructure spending helped offset weakness in exports. The Shanghai Composite climbed 2.9% and the CSI 300 added 2.5% in June, but the standout performer was the Hang Seng Index, which rose 3.4% for the month and 23% YTD, propelled by record capital flows of USD 90b from mainland China into Hong Kong-listed equities during the first half of 2025.

European indexes underperformed, weighed down by weak cyclical sectors and heightened sensitivity to the Iran-Israel war, despite the Euro’s continued rapid appreciation. The STOXX 600 recorded a loss of 1.2%, while the DAX lost 0.4% during June. Bitcoin closed the month at its highest monthly close ever at just over BTC/USD 107,000, marking three consecutive record months above six figures. Interestingly, Coinbase was the best performing S&P 500 equity during June, rising by 43%.

The 12-day War and the markets

Undoubtedly, an intense 12-day conflict between Iran and Israel, with further U.S. involvement, overshadowed all other events that occurred during the month. However, despite the crisis, the major Israeli stock index (TA-35) surprisingly rose by 9.2% in June, with the largest growth period (8.2%) occurring during the active military actions from June 15 to 25, as investors perceived Israel’s (and the U.S.’) military successes against Iran as a stabilizing factor that boosted confidence in the country’s economic resilience. At the same time, these developments sparked renewed interest in Israeli defense and technology stocks.

The war had only a slight effect on U.S. markets, as the S&P decreased by just 1.3% from June 12 to 20, and two days later this decline was fully recovered. The same trend was followed by the Nasdaq Composite, which declined by 1.1% between June 12 and 20, but fully recovered. As already mentioned, unlike the U.S. and Israeli markets, European equities were more sensitive to the Israel-Iran war, experiencing a 2.4% decline for the STOXX 600 and a 1.8% decline for the DAX between June 12 and 20.

Observing major U.S. defense stocks (Lockheed Martin, Boeing, General Dynamics, and Northrop Grumman Corporation), equity prices did not increase during the war period (June 13 to 25). Boeing and General Dynamics remained almost unchanged, while Lockheed Martin and Northrop Grumman declined by more than 5%, which may indicate that investors initially did not expect the war to be prolonged or escalated.

One Big, Beautiful Bill

Since returning to the Oval Office, Donald Trump has made the “Big, Beautiful Bill” the centerpiece of his economic agenda. The bill represents one of the most ambitious fiscal packages in modern U.S. history, combining roughly USD 4.5t in tax cuts with sweeping spending adjustments, including both reductions and new outlays targeted at defense and border security. While the administration claims the legislation will reduce the federal debt-to-GDP ratio to 94% by 2034 — supported by projections that tax cuts alone would generate USD 755b in deficit relief by 2024 — many economists remain unconvinced.

Critics ranging from Nobel laureates Paul Krugman and Joseph Stiglitz to a wide spectrum of policy analysts take the “Big, Beautiful Bill” with a pinch of salt to say mildly. The major concern regarding the bill is that the tax cuts would be beneficial only for the top 20% income earners and the poorest would be worse off due to reduction or even abandoning medical and social perks, however the main focus from the economist point of the view should be on the bill’s effect on the U.S. debt and budget deficit.

Beyond the political optics, economists stress the bill’s long-term fiscal risks. A Yale Budget Lab study finds a brief GDP boost of 0.2 percentage points annually from 2025 – 2027, but this fades into a long-term drag, with GDP projected to be 3% lower by 2054 due to crowding out from rising government borrowing. The fiscal expansion pushes up interest rates — raising the 10-year Treasury yield by 1.2 points — and widens deficits by nearly 3% of GDP by the 2030s. Strikingly, two-thirds of that increase stems from ballooning interest payments, not direct policy costs. Federal debt-to-GDP is projected to hit 183% by 2054, 41 points above the no-bill scenario. Half of this is driven by tax cuts and spending changes; the rest comes from slower growth and higher rates. Over time, short-term stimulus gives way to structural weakness.

Macro data without surprises

The U.S. manufacturing sector continued to contract in June, but at a slower pace. The ISM Manufacturing PMI rose slightly to 49, up from 48.5 in May, marking the fourth consecutive month of contraction. The slower decline was supported by a rebound in production and improvements in inventories. On the other hand, the services sector rebounded after a one-month slowdown, with the ISM services PMI rising to 50.8 from 49.9 in May. On June 18, the Fed decided to maintain the federal funds rate at 4.25%-4.50%, as the U.S. central bank weighs signs of a weakening economy against still-elevated inflation. As Fed Chair Jerome Powell stated, interest rate cuts would likely be underway were it not for the inflationary effects and economic uncertainty caused by Trump’s new tariffs. Consequently, in May, the annual inflation rate in the U.S. rose for the first time in four months to 2.4%.

As expected, the Eurozone’s manufacturing sector continued its slowdown over the month. However, the services sector returned to expansion territory after contracting for the first time in 7 months in May, with a PMI reading of 50.5 for June. Annual inflation in the bloc rose slightly to 2.0%, up from May’s eight month low of 1.9%.

Dollar weakens while metals advance; oil stabilizes

The Euro had a strong month, with the EUR/USD pair breaking above the key resistance level of 1.1550 and finishing June near 1.1800. The trend remains clearly upward for now, and we see opportunities to buy on dips, particularly if the pair pulls back to the former resistance around 1.1550, which could now act as strong support. However, indicators suggest that a short-term top may be forming near the EUR/USD 1.1950 area. As such, a trading range between 1.1550 and 1.1950 could play out in the weeks ahead.

It was an active and encouraging month for precious metals, and our recent strategy played out well. Platinum, which had previously lagged behind, surged higher and caught up with the rest of the group. We continue to favor a rotation out of gold and into platinum and silver.

Oil prices briefly spiked to USD/bbl 80 following U.S. strikes on Iranian nuclear facilities, but subsequently fell after there was no further major escalation. As we noted last month, our technical outlook didn’t support the widespread bearish view on oil, and the short-lived rally validated that call. However, with the military escalation contained for now, we are adopting a neutral stance on oil.