The S&P 500 Index ($SPX) (SPY) fell -1.13%, the Dow Jones Industrials Index ($DOWI) (DIA) fell -1.79%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -1.29%. June E-mini S&P futures (ESM25) fell -1.06%, and June E-mini Nasdaq futures (NQM25) fell -1.20%.
Stock indexes fell on Friday after Israel on Thursday night launched a series of military attacks on Iranian nuclear and ballistic missile programs and also killed some top Iranian military commanders and nuclear scientists. Israel struck some 100 targets in Iran. The situation worsened mid-day Friday when Iran responded by launching dozens of ballistic missiles into Israel, which virtually ensured that Israel would continue its attacks on Iran’s missile and nuclear facilities in the coming days.
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Israeli Prime Minister Netanyahu said the strikes “will continue for as many days as it takes to remove this threat.” President Trump said Iran needs to make a nuclear deal with the US “before it is too late,” and the next round of attacks will be “even more brutal.” US-Iranian nuclear talks are scheduled for Sunday, but it remains unclear whether they will proceed.
The Trump administration said the US was “not involved” in the military strikes. However, the US might be drawn directly into the Israeli-Iranian conflict if Iran tries to block the Strait of Hormuz or Iran attacks US assets in the region, either directly or through proxies. The US might also directly attack Iran if Iran responds with widespread attacks on Israeli civilians. Aside from a potential military conflagration in the Middle East, the markets are worried about the disruption to the global economy from an upward spike in oil prices.
Oil prices rallied +7% on the Israeli attacks. Gold prices rallied by +1.50%, while bitcoin fell -0.9% on a risk-off climate.
Investors were cautious ahead of this weekend’s G-7 meeting in a resort town near Banff due to the possibility of fresh trade or tariff developments as President Trump meets with his counterparts. Investors are also bracing for negative tariff news over the next few weeks after President Trump late Wednesday said he intends to send letters to dozens of US trading partners in the next one to two weeks setting unilateral tariffs, ahead of the July 9 deadline that came with his 90-day pause.
In some positive trade news, UK Prime Minister Starmer stated Friday that there are no remaining obstacles to finalizing a US-UK trade deal and that the agreement is likely to be concluded soon.
Friday’s preliminary June University of Michigan US consumer sentiment index rose +8.3 points to 60.5, stronger than expectations for a rise to 53.6. In another favorable development, 1-year inflation expectations fell to +5.1% from +6.6% in May, which was a larger decline than expectations of a decline to +6.4%. The 5-10 year inflation expectations indicator fell slightly to +4.1% from +4.2% in May, in line with market expectations.
The markets are discounting the chances at 3% for a -25 bp rate cut at the next FOMC meeting on June 17-18.
Overseas stock markets on Friday closed lower. The Euro Stoxx 50 closed down -1.31%. China’s Shanghai Composite closed down -0.75%. Japan’s Nikkei Stock 225 closed down -0.89%.
Interest Rates
September 10-year T-notes (ZNU25) on Friday fell by -14.5 ticks. The 10-year T-note yield rose by +5.1 bp to 4.411%. T-note prices fell on the inflationary implications of Friday’s +7% rally in oil prices. The 10-year breakeven inflation expectations rate rose +2.2 bp to 2.291%, rebounding higher from an early 5-week low. T-note prices failed to gain any upside momentum from safe-haven demand.
European government bond yields rose. The 10-year German bund yield rose by +5.8 bp to 2.535%. The 10-year UK gilt yield rose by +7.3 bp to 4.550%.
Swaps are discounting the chances at 11% for a -25 bp rate cut by the ECB at the July 24 policy meeting.
US Stock Movers
Israel’s military attack on Iran produced a rally in oil and defense stocks while travel stocks fell. Exxon (XOM) rose by +2.1%, and Chevron (CVX) rose by +0.7%. Defense contractors rallied, with Lockheed Martin (LMT) up +3.7%, Northrop Grumman (NOC) up +4.0%, and RTX Corp (RTX) up +3.6%.
Travel stocks were under pressure, as tourism would be undercut if there were an extended war in the Middle East. Booking Holdings (BKNG), Expedia Group (EXPE), Hilton Worldwide Holdings (HLT), and Marriot International (MAR) all showed losses averaging about -3%.
Airlines took a hit Friday as higher oil prices mean increased fuel costs and reduced profits. Airline stocks were already on weak ground after US inflation news on Thursday showed airfares in May fell -2.7% m/m, the fourth straight month-over-month decline, the longest skid in nearly a year. American Airlines Group (AAL) and United Airlines Holdings (UAL) fell by more than -4%, and Delta Air Lines (DAL) fell by -3.8%. Southwest Airlines (LUV) fell by -2.7%.
The Magnificent 7 stocks all closed lower on Friday due to risk-off sentiment, except for Tesla (TSLA), which closed up +2%. The largest losers among the Magnificent 7 were Nvidia (NVDA), with a -2.1% loss, and Apple (AAPL) and Meta Platforms (META), with losses of more than -1%.
Visa (V) and Mastercard (MA) fell more than -4% on Friday’s Wall Street Journal report that large retailers, such as Amazon and Walmart, are investigating how to use or issue stablecoins to bypass credit card fees.
US Steel (X) fell -2.6% after Nikkei reported that Nippon Steel’s planned takeover of US Steel may be halted if Nippon does not have sufficient freedom of management.
Adobe (ADBE) fell more than -5% after Q2 results beat expectations but were insufficient to alleviate concerns that AI will take a big bite out of Adobe’s revenues.
McDonald’s (MCD) fell -0.4% after Argus Research downgraded the stock to hold from buy.
Boeing (BA) on Friday fell by nearly -2%, adding to Thursday’s -5.14% decline, as the fall-out continued from Thursday’s crash in India of a Boeing 787 Dreamliner jet that killed over 240 people.
Earnings Reports (6/16/2025)
Powerfleet Inc NJ (AIOT), Lennar Corp (LEN), Digital Turbine Inc (APPS).
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