U.S. equities ended the week lower after a sharp Friday selloff triggered by escalating geopolitical tensions in the Middle East.
The Dow Jones Industrial Average dropped 1.32%, falling back into negative territory for the year.
Smaller-cap benchmarks performed even worse, with the S&P MidCap 400 and Russell 2000 losing 1.46% and 1.49%, respectively. The S&P 500 and Nasdaq posted smaller losses but held onto modest year-to-date gains.
Early-week optimism was supported by positive economic data and signs of progress in U.S.-China trade negotiations.
Reports of a preliminary agreement and comments from Treasury Secretary Scott Bessent suggesting a potential extension of the current 90-day tariff pause helped lift sentiment.
Inflation data also surprised to the downside, with the May CPI rising just 0.1%, while core CPI remained stable at 2.8% year over year. Producer price data echoed the trend, undershooting forecasts.
Business and consumer sentiment showed signs of recovery. The NFIB small business optimism index rebounded after four months of decline, and the University of Michigan’s consumer sentiment index rose sharply to 60.5 in June. Treasury yields declined midweek on easing inflation data, but Friday’s geopolitical escalation spurred a partial reversal, reflecting renewed investor caution.
Europe: Growth cools amid trade uncertainty and rate speculation
European markets were broadly lower, with the STOXX Europe 600 Index falling 1.57%. Germany’s DAX led losses with a 3.24% drop, followed by Italy’s FTSE MIB (-2.86%) and France’s CAC 40 (-1.54%). The UK’s FTSE 100 was little changed. Weaker economic indicators and concerns around global trade weighed on sentiment.
In the UK, GDP shrank by 0.3% in April, the sharpest decline in seven months, which was driven by weakness in the services and industrial sectors. Exports to the U.S. saw a record monthly fall, and the labor market showed signs of softening, with unemployment rising to 4.6%. Wage growth also decelerated to its slowest pace since Q3 2024.
Across the eurozone, industrial output contracted 2.4% in April, and the bloc’s trade surplus narrowed sharply. These indicators raised doubts about the resilience of the region’s recovery. Meanwhile, the European Central Bank signaled a more cautious tone, hinting at a possible pause in its easing cycle. ECB President Christine Lagarde described the current policy stance as “well calibrated,” and Chief Economist Philip Lane reinforced the message of caution. T. Rowe Price’s Tomasz Wieladek noted that further rate cuts may be limited unless economic data deteriorate significantly.
Asia & global industry: Inflation pressures diverge
In Asia, geopolitical tensions and trade dynamics shaped investor sentiment. Japan’s Nikkei 225 rose 0.25%, but the broader TOPIX Index edged lower. A stronger yen, driven by safe-haven flows, weighed on exporters. Investors looked ahead to the G7 summit, seen as pivotal for U.S.-Japan trade talks. Japan’s Q1 GDP was revised to flat, improving from an earlier contraction, though industrial production fell in April.
In China, markets were mixed. The CSI 300 and Shanghai Composite slipped 0.25%, while Hong Kong’s Hang Seng rose 0.42%. Deflation remained a concern as the CPI declined for the fourth consecutive month and factory gate prices continued their prolonged slump. While Beijing and Washington’s agreement on a temporary tariff reprieve offered hope, economists remain cautious on China’s price outlook despite improved near-term growth expectations.
Oil prices surged following Israeli airstrikes on Iran, intensifying fears of broader conflict in the region. The spike benefited energy stocks globally but also injected volatility into broader markets. With geopolitical risks on the rise, investor attention will likely remain focused on energy prices, central bank signals, and any developments from global trade negotiations.
As markets continue to grapple with inflation, geopolitics, and policy direction, vigilance and adaptability remain key for investors navigating an increasingly complex landscape
