Last Week on Wall Street – June 28th, 2025

S&P 500: 3.46% DOW: 3.85% NASDAQ: 4.25% 10-YR Yield: 4.27%

What Happened?

Despite a late-afternoon dip due to President Trump’s statement terminating trade talks with Canada, Wall Street closed out its final week of June with major indexes hitting all-time highs, fueled by investor optimism regarding the U.S.-China trade situation and budget negotiations in Congress. Both the S&P 500 and the Nasdaq notched new highs at 6158 and 20240 points, respectively. A stark contrast to performance from recent months, the S&P is on pace for a remarkable recovery following a 15% decline in earlier trading sessions. Tech stocks were the main drivers of these historic highs, as waning fear regarding tariffs and war in the Middle East were usurped by optimism regarding the growth potential of artificial intelligence.

Jerome Powell testified in front of congress earlier this week, stating that the Fed will keep its wait-and-see approach and keep interest rates steady until more data is available regarding the economic effect of tariffs on American businesses. Policymakers are split on where they see interest rates going, with about half seeing no rate cuts, and half seeing two or more by years end.

On the political front, trade tensions between the U.S. and Canada escalated Friday as President Trump abruptly terminated months-long negotiations over what he called an “egregious” digital-services tax impacting U.S. tech giants. Canadian Prime Minister Mark Carney, newly elected and under intense political pressure, vowed to defend the tax and continue talks despite Trump’s call to end them. While dairy tariffs and steel and aluminum duties have compounded friction, both sides had hoped to reach a broader agreement tied to renegotiations of the USMCA later this year. Though investors briefly reacted with volatility, the market quickly steadied, with tech stocks remaining buoyant amid confidence that the broader AI-driven rally remains intact.

Sales of new homes tanked in May, pushing supply up to a 3-year high

Single-family homes dropped 13.7% in May to 623,000.
Sales total was 6.3% lower than May 2024 and well below the six-month average of 671,000.
Lags the pre-pandemic levels of 685,000.

The key takeaway – The housing market, once a beacon of economic strength during the pandemic, is now flashing warning signs. Last week’s May existing home sales report came in well below expectations, marking yet another stumble for a sector that typically leads the broader economy.

Home sales aren’t just about real estate, they’re a signal. When people buy homes, they buy appliances, furniture, insurance, and confidence in their financial future. So, when activity slows, it’s not just a housing story, it’s an economic one.

Mortgage rates remain stuck around 7%, leaving affordability stretched thin despite modest declines in home prices. The result: would-be buyers are either priced out or too spooked to make a move. Existing homeowners, meanwhile, are clinging to their low-rate mortgages, keeping inventory tight and turnover sluggish.

The broader message is harder to ignore: consumer demand is cooling, and not just in housing. When one of the economy’s most interest-rate-sensitive sectors slows this decisively, it suggests the lag effects of the Fed’s tightening cycle may be gaining traction. Fewer home purchases today can mean weaker retail spending, reduced construction activity, and softer job growth tomorrow.

Of course, housing doesn’t operate in a vacuum. The labor market remains resilient, inflation is trending lower, and the Fed still insists it’s in no rush to cut rates. But if this slowdown in sales turns into a broader trend, especially as student loan repayments, election uncertainty, and global risks weigh on sentiment, don’t be surprised if housing becomes the first domino to fall.

Core inflation rate rose to 2.7% in May, more than expected, Fed’s preferred gauge shows

Consumer spending and income showed further signs of weakening. Spending fell 0.1% for the month, while personal income declined 0.4%
The personal consumption expenditures price index, the Fed’s primary inflation reading, rose to a seasonally adjusted 0.1% for the month, putting the annual inflation rate at 2.3%

The key takeaway – May’s economic data sends a mixed message, The Fed’s preferred inflation gauge, core Personal Consumption Expenditures Price Index, which excludes volatile food and energy, showed an uptick in May to 2.7%. The modest increase in prices, caused mostly by services, comes alongside signals of sputtering consumer activity, which may help limit future inflationary pressure.

At the same time, the economy appears to be holding its ground, giving the Fed breathing room as it watches how summer tariffs may ripple through prices. With tariffs expected to add upward pressure to inflation in the coming months, policymakers are split. Some, like Fed Chair Jerome Powell, are preaching patience, emphasizing the need for clear data before making a move. Others, including Trump-appointed officials, are voicing concern about the labor market and advocating for a precautionary rate cut sooner rather than later.

In the meantime, markets are pricing in a September rate cut, with some analysts predicting more action before year-end if the economy begins to lose momentum more decisively. For now, the Fed is walking a thin line, managing inflation expectations while supporting growth, all amid rising political pressure and global uncertainty.

Powell says Fed must continue to manage risk amidst tariff inflation

Powell states Fed must continue to manage inflation risk.
“There is no modern precedent” as a model for current tariff situation, Powell states.

The key takeaway – Fed chair Jerome Powell testified in front of Congress on Tuesday as part of his semiannual monetary policy report. His approach was one of caution, stating that although economic theory does point to tariffs as a one-off shock to prices, it is “not a law of nature”. Despite this information, however, Fed officials still expect at least two rate cuts this year, with debate around timing as trade deadlines approach and more tariff data unfolds as the year progresses.

This testimony comes amidst a clear disconnect between the Fed chair and Donald Trump, who demanded earlier this month that Powell cut rates immediately. Policymakers across the board have differing views on where rates will be at the end of the year, seven of the 19 policymakers see no rate cuts at all this year, while ten policymakers see two or more rate reductions.

Markets had mixed reactions to the information, with the Dow Jones Industrial Average down 0.3%, Nasdaq up 0.3% and the S&P500 virtually unchanged at close on Wednesday. Oil rose after several days down in a row as Middle East oil supplies looked to remain intact amidst the Israel-Iran conflict.