The State of the Markets (June 2025) | Charlie Bilello | Creative Planning

US Equity Market Dynamics

• 📈 The S&P 500 experienced a 21% decline from its February peak to an April low, followed by a significant 18.5% rally in nine weeks, one of the largest since 1989.
• 📉 The VIX (Volatility Index) saw a stunning 63% collapse over nine weeks, a historically unprecedented decline, which typically precedes continued market rallies.
• 📊 There's a notable divergence within the MAG7 (Magnificent Seven) stocks, with Meta, Microsoft, and Nvidia outperforming, while Amazon, Google, Tesla, and Apple have seen declines, possibly due to differing expectations regarding tariff impacts.
• ⚠️ Small-cap stocks (Russell 2000) have significantly lagged, down 7% year-to-date, failing to recover their 200-day moving average, possibly due to perceived higher vulnerability to tariffs.

Valuations and Global Equities

• 💰 US equity valuations remain elevated, with the S&P 500 trading at 25 times trailing operating earnings and a CAPE ratio of 35, both well above historical averages and comparable to levels seen before the 2000 dot-com bubble.
• 📉 Historically, high valuations tend to correlate with lower average long-term (10-year) future returns, though they are not predictive of short-term market timing.
• 🌍 International stocks have shown historic outperformance year-to-date, with the MSCI World excluding US equities up 17% compared to the S&P 500's 2%, reversing a 16-year trend of US dominance.
• 🇪🇺 European markets like Eurozone, Poland, Greece, and Spain have seen substantial gains, driven by currency appreciation against the declining dollar.

Bond Market and Federal Reserve

• ⏳ The bond market is in its longest-ever drawdown, now 58 months, with a 6% decline from its peak, though it has improved from a 17% peak drawdown.
• 📈 The Aggregate Bond ETF is up 2.9% year-to-date, slightly outperforming the S&P 500, with emerging market local currency bonds being top performers.
• 🏦 The Federal Reserve is expected by the market to implement two rate cuts in 2025 (September and December) and 2-3 in 2026, despite raising its core PCE inflation expectation to 3.1%.
• 📉 The Fed's willingness to cut rates is tied to projected weakness in real GDP (1.4%) and a potential rise in the unemployment rate (4.5%), indicating a shift in focus from inflation to employment.

Real Estate and Housing Trends

• 🏢 REITs (VNQ) are still down 12% from their early 2022 peak, and commercial real estate prices remain 17.6% below their peak, underperforming the broader stock market.
• 🏡 The US housing market is at its least affordable point in history, with home prices rising 94% over the last decade while average hourly earnings increased only 45%, making over 45% of median income necessary for a home payment.
• 🏗️ Housing supply is gradually improving, with active listings up 15% year-over-year, which is expected to lead to a deceleration in home price appreciation for the remainder of the year.
• 🏘️ In contrast, the rental market has seen 24 consecutive months of year-over-year declines in rents, making it more affordable due to increasing supply and vacancies outpacing demand.

Commodities and Currencies

• 🥇 Gold has been a standout performer, up 29% year-to-date and on track for its best year since 1979, driven by tariff uncertainty, a declining dollar, and inflation concerns, reaching a new inflation-adjusted high.
• 🛢️ While gold has performed exceptionally, broad commodities (excluding gold) have shown little overall return over the past 20 years, with natural gas, coffee, and lumber also seeing strong gains recently.
• 📉 The US Dollar Index has experienced its worst start to a year on record, down 9% year-to-date, reversing its previous strength, influenced by tariff policies and investment outflows.
• 💹 Currency movements are influenced by interest rate differentials and economic growth rates, with expectations of future Fed rate cuts and potential Bank of Japan hikes impacting the dollar's trajectory.

US Economic Outlook

• 📈 The US economy saw a technical negative GDP print in Q1 (-0.2%) primarily due to net exports, but Q2 is projected to rebound strongly (3.4% by Atlanta Fed) as import trends reverse.
• 💼 The jobs market continues to grow for the 53rd consecutive month, though there are signs of cooling with initial and continued jobless claims beginning to tick up.
• 💸 Fiscal policy debates in the Senate suggest continued high government spending and potential $2 trillion deficits, with little likelihood of major reductions.
• ✅ A key positive for the economy is that hourly earnings have outpaced inflation for 25 consecutive months, providing American workers with increased purchasing power and supporting consumer spending.