Stock and bond indices crept higher this week on positive developments in trade talks with China and another round of good inflation data, this time for May. Both consumer and producer inflation readings were better than expected last month as the much-anticipated tariff effects have yet to appear. The inflation rate (CPI) now stands at 2.4%.
https://www.cnbc.com/2025/06/11/cpi-inflation-may-2025.html
https://www.reuters.com/world/us/us-producer-prices-rebound-less-than-expected-may-2025-06-12/
But economists are warning that tariffs will impact prices in the months ahead.
There is evidence that some of the good consumer spending and corporate profit numbers from the 1st quarter were due to companies stockpiling goods and consumers accelerating purchases in anticipation of higher prices.
If this pulling forward of economic activity was significant enough, we could see decelerating economic growth AND higher prices in the second half of the year. However, we aren’t seeing any concerning signs of stagflation ahead just yet.
In fact, 2nd quarter economic growth (GDP) is looking good according to the Atlanta Fed (currently forecasting 3.8%) and the New York Fed (currently forecasting 2.3%).
US stock indices remain near their all-time highs and may have rallied even higher this week if rising tensions in the Middle East hadn’t shown up on investors’ radar. Israel’s attack on Iran’s nuclear facilities and personnel Thursday night are wiping out most of this week’s gains as of Friday morning. Importantly, while the price of oil immediately spiked higher after the strikes, there has not been a disruption of oil supply out of the Middle East yet. Markets will no doubt be watching for signs of escalation and energy supply disruption next week.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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