Inflation Clouds, Market Optimism: June in Review
Commentary:
Markets moved higher in June, as investors looked past mixed economic data and focused on the possibility of lower interest rates in the future. U.S. large-cap stocks reached new record highs, while international stocks continued their strong performance this year. Though not as much as stocks, bonds also posted positive gains for the month.
The S&P 500 rose 4.7% in June and is now up 6.2% for the year, closing above 6,100 for the first time. Small-cap stocks also gained, with the Russell 2000 climbing about 3% for the month, reducing its 2025 loss to -2.6%. International developed markets outperformed once again, with the MSCI EAFE index up 20.3% year-to-date, supported by a weaker U.S. dollar and better earnings outlooks. Core bonds delivered a modest return, bringing the Bloomberg U.S. Aggregate Bond Index to a 4.0% gain for the year.
Economic data showed inflation is slowing, but still above central bank targets. At its June meeting, the Federal Reserve lowered its forecast for U.S. growth in 2025 and raised its year-end inflation estimate to 3.0%. Fed Chair Jerome Powell emphasized the need to stay cautious, especially with tariff-driven price pressures still a concern. Slower job growth in May gave the Fed more room to hold rates steady through the summer.
Conclusion:
Our current market model indicates that the U.S. economy is entering a "Quad 3" regime for the third quarter of 2025—an environment where economic growth slows while inflation rises. To position for this backdrop, we are overweight in Utilities (XLU), Consumer Staples (XLP), and Energy (XLE) within our Satellite 1 allocation. These sectors tend to perform well when pricing power and stable, defensive cash flows are rewarded.
Internationally, we maintain focused exposure to Brazil (EWZ), Mexico (EWW), and Australia (EWA). Each of these countries has a commodity-driven economy that stands to benefit from a weaker U.S. dollar and favorable macroeconomic conditions.
Within Satellite 3, we continue to hold positions in Gold (AAAU) and a broad commodities basket (COM), both of which should benefit from rising inflation in both Quad3 and Quad2.
As we look ahead of Q3, the signals show a potential shift to a “Quad 2” regime in Q4 2025—an environment where both growth and inflation accelerate. As such, we are closely watching for early indicators of this transition. If confirmed, we would expect a rotation toward higher-beta assets and inflation hedges, which typically perform well in Quad 2. In that case, we may reduce exposure to more defensive positions like XLP and selectively add to pro-cyclical sectors.
The U.S. dollar remains an important factor. Continued weakness would enhance earnings potential for EWZ, EWW, and EWA, thanks to stronger commodity prices and favorable domestic economic setups. Overall, our approach—grounded in diversified, high-quality equities and real-asset hedges—keeps the portfolio well-positioned for today’s inflation-driven environment, while maintaining flexibility to participate in a broader growth rebound if it emerges.
Model Performance Update
Our Moderate Model Portfolio returned 2.04% during the month of June and has returned 6.03% YTD
Changes to the model portfolio in June
6/3/2025
- Added Australia (EWA) to Satellite 1
6/17/2025
- Added Brazil (EWZ) and Mexico (EWW) to Satellite 1
- Increased Gold (AAAU) position in Satellite 3
6/24/2025
- Replaced Eurozone (VGK) with Global Value (GVAL) while maintaining positions in Germany (EWG) and Spain (EWP) in Satellite 1
- Added Energy (XLE) to Satellite 1
June Performance with Benchmark
YTD Performance with Benchmark
If you were to have any questions regarding the above please reach out to us to set up a one to one meeting to review your situation.
Sincerely,
Bryant Andrus, MSF, CFP®
President
SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com
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