Daily Newsletter 6/17/25
U.S. equities rebounded on Monday as investor sentiment improved amid hopes that the Israel-Iran conflict will remain contained, alleviating concerns over a potential broader regional escalation.
The Dow advanced 317 points, the S&P 500 gained nearly 1%, and the Nasdaq rose 1.5%.
Oil prices, which had surged following Israel’s airstrikes on Iran last Friday, declined by more than 1% after reports indicated Iran’s willingness to consider a ceasefire in exchange for progress on nuclear negotiations.
Tehran has reportedly engaged regional powers to encourage President Trump to press Israel for de-escalation. While geopolitical tensions persist, markets found reassurance in the prospect of diplomatic resolution, leading to a reduction in safe-haven demand and a rally in technology stocks.
In our assessment, the impact of escalating tensions in the Middle East on global markets will primarily hinge on two key factors:
Potential Disruption to Iranian Oil Supply: If the Iranian oil industry sustains damage, or if Iran’s oil exports are significantly reduced—particularly through a blockage of the Strait of Hormuz—the consequences for the global oil market could be substantial. Iran currently produces over 3.4 million barrels per day, with approximately 60–65% exported. The Strait of Hormuz is a critical chokepoint, handling nearly a third of the world’s seaborne oil and a significant share of global LNG shipments. Any disruption, even temporary, could drive oil prices sharply higher and inject considerable volatility into energy markets.
OPEC+ Response: The ability and willingness of OPEC+ to compensate for any shortfall in supply will also be decisive. While OPEC+ has indicated it could increase output to offset disruptions, the majority of spare capacity is concentrated within the Persian Gulf. If access to this capacity is compromised by regional instability, the effectiveness of OPEC+ in stabilizing markets could be limited.
It is also essential to consider how markets have historically responded to oil-related geopolitical events. An interruption in the global oil supply chain does not automatically lead to sustained higher prices. Our data and experience indicate that oil prices typically react with an initial surge—such as after 9/11 or the invasion of Ukraine—but often return to previous levels, or even lower, within a relatively short period. This pattern is largely driven by supply and demand dynamics: geopolitical disruptions may cause a spike in prices, but higher prices can disrupt market balance and, if accompanied by a decline in demand, ultimately lead to a subsequent decrease in prices. In summary, the relationship between geopolitics and oil prices is far from linear.
The Fed will announce its interest rate decision and updated economic projections at 2:00 p.m. EST tomorrow, followed by a press conference.
The Fed’s announcement and guidance will be a key market driver, as any unexpected shifts could prompt significant moves across asset classes. In line with consensus, we anticipate the Federal Reserve will implement two rate cuts once the economic outlook stabilizes and inflationary pressures from recent tariffs subside. Our projection of two rate cuts in 2025 remains subject to revision as we monitor evolving market conditions and adjust our outlook accordingly.
While we do not assign a specific probability to the likelihood of a recession, we currently assess the risk of a mild recession to be lower than it was a few weeks ago.
The upcoming AAII and NAAIM sentiment readings on Thursday, along with the COT report on Friday, will provide valuable insight into market sentiment and positioning, especially given the limited guidance currently available from hard economic data.