Published June 27,2025
The stock market approached new highs this week. Where have all the bears gone? Delta Research offers the crosscurrents below that continue to generate the Wall of Worry that stocks are climbing.
“The stock market surged this week despite U.S.-Iran military tensions. It rallied when bombings began, climbed further on ceasefire news, and even gained after reports suggested limited damage to Iran’s nuclear capabilities. The S&P 500 rose over 2%, now within 1% of its all-time high. If you predicted this response, you’re operating at an elite level.
Consumer confidence paints a mixed picture. The Conference Board’s Consumer Confidence Expectations Index fell from 73.6 to 69.0 on Tuesday, remaining below the 80 threshold that often signals a looming recession. The Conference Board’s Leading Economic Index (LEI) for May dipped slightly (-0.1%), with its six-month moving average has been negative for the 37th consecutive month—a historically reliable recession signal that hasn’t yet materialized. This period’s negative 6-month average is closing in on the record, which occurred during the Great Financial Crisis (2007-2009).
In contrast, the University of Michigan’s Index of Consumer Sentiment rose from 52.2 to 60.5 in June, exceeding expectations of 53.5 (per preliminary estimates). This first uptick in six months, driven by easing tariff concerns, shows cautious optimism, though consumers remain wary of the economy’s path.
Despite June’s uptick, consumer sentiment remains near 2022 lows, significantly below the highs of 2018–2020. Persistent inflation fatigue, recession signals from the LEI, and geopolitical uncertainties like U.S.-Iran tensions likely keep consumers cautious, even as cash reserves and spending power drive economic growth.
JP Morgan’s “Consumer Cash Pile”—comprising checking, savings, and money market funds—hit a record $21.7 trillion in Q1 2025, up from $14.8 trillion in Q4 2019. Contrary to expectations of depletion, this cash hoard has grown over six years, even as consumer sentiment has trended downward – rising cash reserves fuel elevated spending, a key driver of stronger-than-expected GDP growth.
Market signals remain robust despite mixed fundamentals. The CBOE Volatility Index (VIX), a gauge of investor anxiety, sits at normal levels. The bond market shows little concern, with high-yield spreads at a low 3%. The 10-year U.S. Treasury yield, at 4.3%, aligns with its 200-day moving average, reflecting steady institutional capital flows.
Fundamentally, tariff fears may be easing, and the U.S.-Iran conflict appears to be de-escalating. Inflation is cooling, and economic growth remains resilient. Fed Futures indicate an 84% chance of a rate cut by the September Fed meeting, with two cuts expected by year-end. Despite softness in housing and retail sales, the stock market’s price action suggests sustained economic and earnings growth.
Market Update
A de-escalation in the Israel-Iran situation led to a strong +1% Monday gain for stocks. Tesla’s launch of its long-awaited robotaxi service pushed that stock higher by +8% to further bolster the market. A weak consumer sentiment report pushed interest rates lower Tuesday. Rates fell all this week as investors have come to believe that the Fed will cut interest rates in the coming months, if not as soon as July. Stocks added another +1% Tuesday. Little movement Wednesday though interest rates continued their slide. Stocks resumed their upward climb Thursday with a +0.8% gain. Reports that President Trump might pre-announce his choice for the next Federal Reserve Chairman further pressured interest rates. Trump has made no secret of his desire for the Fed to lower rates. China-U.S. trade relations continued to appear mostly repaired with a strong rally in semiconductor shares providing evidence. Semi bellweather Nvidia vaulted to new highs. Adding to the rally in semis was a powerful earnings report from semiconductor memory maker Micron. Friday found the S&P 500 higher for a fifth straight day to solidify its move to record highs the day before.
Everything came up roses for stocks this week with a sharp downward move in interest rates propelling markets to new heights. The S&P 500 (SPY) popped +3.47% to break out of a three-week consolidation. The Nasdaq 100 (QQQ) notched a +4.15% rally. Small-caps (IWM) remain capped by their 200-day moving average. This week the group’s +3.00% move was halted by this overhead resistance.
Warm wishes and until next week.