— Herbert Hoover
“Blessed are the young, for they shall inherit the national debt.”
June was another strong month for US equity and credit markets, underpinned by continued dollar weakness, broadly positive economic data, and falling bond yields—despite the Fed holding policy rates steady and the fiscally profligate ‘Big, Beautiful Bill’ nearing the finish line in Congress. The S&P 500 Index and the NASDAQ Composite Index ended the month up +4.5% and +4.3%, respectively, both closing at new all-time highs. Credit indices also rallied thanks to the risk-on mood, with spreads tightening across both investment grade and high yield segments.
Positive performance came despite a significant geopolitical shock mid-month following the breakdown of US-Iran nuclear negotiations. In response, Israel launched direct strikes on Iran’s nuclear facilities and energy infrastructure, and reportedly killed numerous scientists and senior military personnel involved in Iran’s nuclear and ballistic missile programmes—likely setting those programmes back by many years. Iran responded with strikes of their own, some of which evaded the Iron Dome and reached Israeli territory. The US then joined the offensive, using advanced bunker-busting munitions to strike the heavily fortified Fordo nuclear enrichment facility, which President Trump has subsequently claimed was ‘obliterated’. Iran retaliated with strikes on a US base in Qatar but notably avoided escalation by warning the US in advance, a move interpreted as an effort to prevent a full-scale war. This allowed the US to shoot the missiles down and avoid any casualties.
Although oil prices in particular swung wildly during the confrontation, investors ultimately shrugged off the conflict and markets rallied into month-end after the US managed to broker a ceasefire between Iran and Israel—which has since largely held. However, uncertainty remains as to whether this ceasefire marks the end of the crisis or merely a temporary pause. The US has signalled a willingness to re-open negotiations with Iran, but the Islamic Republic will likely struggle to accept the offer so soon after a humiliating loss of face. Still, policy change of one kind or another is coming to Iran.
European credit markets also performed well in June, but European equities posted modestly negative returns and rates rose. A strengthening euro weighed on share prices, and investors grew increasingly concerned about the looming 9th of July deadline for potential US ‘reciprocal tariffs’ of up to 50% on EU imports. Added to that were fears that Iran might attempt to close the Strait of Hormuz—an outcome that would disproportionately impact Europe given its reliance on Middle East energy imports.
June brought a mixed bag on the trade front. On the negative side, the Trump administration doubled tariffs on steel and aluminium imports from 25% to 50% on the 4th of June. A week later, the scope of these tariffs was extended to include household appliances like refrigerators and dishwashers—further roiling global metals supply chains. Additionally, towards the end of the month, the US walked away from trade talks with Canada in protest over Ottawa’s proposed digital services tax. Still, Canada quickly backed down, scrapping the tax to get talks back on track which now they appear to be.
On the positive side, trade negotiations with both the EU and China have advanced. The talks are taking place behind closed doors so the finer details are scant. But President Trump has hinted that the EU’s digital service tax is on the table (changes to which are a key US demand) and he has said that he does not expect ‘reciprocal tariffs’ on EU imports to be necessary. Meanwhile, US-China discussions, which resumed in May, have produced some micro-deals—focused on the critical issue of US access to rare earth minerals.
Yet, there seems to have been little progress towards a comprehensive US-China deal as fundamental tensions remain unresolved. China faces considerable economic pressure to reach such a deal: trade with the US is sharply down, the housing crisis continues to weigh on consumer spending, and deflation is becoming a serious threat. But Beijing has leverage of its own—notably its control over the supply of rare earth minerals needed by US tech companies—and sees the current trade war as pivotal to its long-term strategic interests. Thus it has reasons to hang tough and a broad resolution is unlikely. Instead, expect slow and painful progress toward limited, sector-specific deals, collectively sold as a breakthrough by an impatient US administration looking for a quick ‘win’.
In addition, even in the best-case scenario, the trade deals that Trump has touted—with Japan, Korea, the EU, Canada, etc.—are unlikely to restore pre-2024 tariff levels. EU officials, for example, anticipate that a 10% baseline tariff will persist whatever else is agreed, likely prompting retaliatory tariffs on US goods too. And it is unlikely to be a smooth ride to the finish line, either. Indeed, the market’s current calm may embolden Trump to extract final concessions from the EU, Japan, and others as the 9th July deadline nears by means of the same pressure tactics seen with Canada. Volatility can be expected—and a substantial allocation to gold remains a valuable hedge.
Finally, another notable geopolitical development came from Europe in June as NATO leaders held their annual summit in The Hague. Most member states—Spain being the main exception—agreed to boost defence spending targets from 2% to 5% of GDP. Of this, 3.5% will go toward core defence and 1.5% toward strategic, defence-adjacent sectors such as infrastructure and cybersecurity.
This dramatic shift reflects dual objectives: addressing US demands to bear more of the financial burden of NATO, and reinforcing European defences given the possibility of further Russian aggression outside Ukraine. Germany’s commitment to build the continent’s most powerful conventional military is central to the plan. Combined with escalating tensions in the Middle East, these moves underscore a world increasingly shaped by hard power dynamics. Over the longer term, this shift is likely to benefit defence equities—particularly in Europe—as governments increase military procurement and investment.
If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.ch
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