May saw markets rebound as tech and consumer stocks surged, offsetting bond losses and debt concerns. International equities outpaced U.S. gains, while gold cooled but remained a top performer.
June kept the momentum going, handing investors a second straight month of market gains and something we haven’t seen in a while — back-to-back optimism. While the headlines still carried their fair share of noise, stocks pressed higher, inflation cooled slightly, and the Fed began showing signs it might be ready to shift gears.
The S&P 500 rose 4.96% in June, pushing the index deeper into positive territory for the year. It also marked the strongest two-month rally since late 2023 and included a record-breaking close on June 27.
Tech and Mega-Caps Continue to Drive the Rally
Just like in May, large-cap tech stocks stole the spotlight. The Nasdaq surged over 6% for the month, helped once again by standout performances from Microsoft, Nvidia, and Meta. These companies continue to benefit from strong earnings and investor enthusiasm around AI and digital infrastructure.
The S&P 500 also saw broad strength across sectors, but Information Technology, Communication Services, and Consumer Discretionary remained the key leaders.
Mid- and Small-Caps Join the Climb
Mid-cap and small-cap stocks participated in the rally, although gains were slightly more modest. Positive sentiment and signs of easing inflation helped lift these segments, which tend to be more sensitive to interest rate expectations. However, year-to-date performance for these groups still lags behind their large-cap counterparts.
Global Markets Press Forward Despite Rising Oil Prices
International markets posted another solid month, even in the face of heightened energy market volatility. Escalating tensions in the Middle East caused a sharp spike in oil prices mid-month, but the reaction was mostly contained in the energy sector. Investors largely shrugged off the news, and global equities continued to climb.
The S&P Developed ex-U.S. and S&P Emerging Markets indexes both recorded positive returns, bolstered by resilient corporate earnings and continued strength in Europe and parts of Asia.
Bonds Hold Steady as Fed Eyes Potential Rate Cuts
The Federal Reserve held interest rates steady in June, maintaining its target range of 4.25% to 4.50%. What caught investors’ attention, though, was the outlook of the central bank. While opinions are split among Fed officials, the door was opened to one or two potential rate cuts before the year-end.
Cooling inflation data and growing concerns about the impact of trade tariffs are pushing the Fed toward a more cautious stance. Still, several policymakers remain hesitant, preferring to wait for more consistent economic signals before making a move.
Tariffs Add Uncertainty to Inflation Outlook
Inflation trends are beginning to reflect the effects of recent trade policies. The Consumer Price Index for June is expected to show a slight uptick, with some economists forecasting the largest monthly increase since January. Much of this is driven by early pass-through from new import tariffs.
The challenge for the Fed is to distinguish between short-term pricing pressure and more persistent inflation. Until that becomes clearer, policy will likely remain data-driven.
Looking Ahead: Markets Still Navigating Crosswinds
The rally in June shows just how resilient the market can be in the face of uncertainty. But risks remain. Tariffs are still a wild card, inflation may prove stickier than expected, and global headlines could spark fresh volatility. That said, continued strength in corporate earnings, a historically strong labor market, and the potential for rate cuts later this year all give investors reasons to stay optimistic.
Markets may not be out of the woods, but they’re walking with a bit more confidence.
Investment Commentary generated with the assistance of artificial intelligence and edited for clarity and accuracy by Jason Flores, CFA, CAIA – Executive Vice President & Chief Investment Officer at Central Trust Company.
At Central Trust Company, we continue to reassess the rapidly changing investment landscape for both risks and opportunities. If you would like to access our full monthly outlook and additional investment commentary, visit our Investments Learning Center. As always, if you have questions or concerns, please contact your Central Trust Company team. We are always ready to help.
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