June 2025 – A Month of Contrasts
In spite of the tension in the Middle East and the trade policy deadline looming, markets showed resilience in some high-growth sectors
Introduction & Macro Overview
The US economic landscape was shaped by a mix of geopolitical tensions, evolving trade dynamics, and shifting monetary expectations. Wall Street experienced notable volatility, with markets reacting to escalating Middle East tensions – particularly the Israeli-Iranian conflict – which drove oil prices to multi-month highs and spurred a flight to safe-haven assets like gold and the dollar. As per the chart below despite the volatility in oil we still did not see price levels that would drive recessionary risks. Overall investor sentiment remained cautiously optimistic, buoyed by softer-than-expected inflation data and resilient labour market indicators. The Federal Reserve held interest rates steady at 4.25–4.50%, with markets increasingly pricing in potential rate cuts by September and some governors pushing for a cut as soon as July. Inflation data showed moderation, with the CPI rising just 0.1% in May and core CPI holding at 2.8% year-over-year. Producer prices also remained tame, reinforcing expectations of a dovish Fed stance later in the year.
Trade policy remained a central theme with Trump’s administration intensifying tariff enforcement and accusing China of violating a Geneva agreement on critical minerals and threatening retaliatory measures; however, progress was made in the London negotiations with a framework agreement in place. The administration also pushed for accelerated trade negotiations with multiple partners, demanding best offers by early July. Meanwhile, U.S. importers grappled with the compounding effects of “tariff stacking,” which raised costs and complicated supply chains. The US housing and labour markets showed mixed signals. Jobless claims remained elevated but stable, while housing starts and building permits edged lower. Consumer sentiment improved modestly, though concerns about tariffs and inflation lingered.
The Eurozone is experiencing a surprising resurgence in global influence. The euro has strengthened, buoyed by geopolitical shifts and a perception of greater European stability amid U.S. unpredictability. European Central Bank President Christine Lagarde has called this a “global euro moment,” urging Europe to seize the opportunity to assert more economic autonomy. European equities have performed well, with the Stoxx Europe 600 Index rallying despite geopolitical headwinds. Germany’s fiscal expansion, including a €19 billion boost for infrastructure and defence, has further supported sentiment. However, the region remains cautious. The Bank of England and Swiss National Bank have diverged in policy, with the latter cutting rates to protect the franc, highlighting the fragmented nature of European monetary responses.
South Africa’s macroeconomic and political landscape was marked by a mix of cautious optimism and persistent structural challenges. On the economic front, markets experienced notable volatility. The JSE All Share Index swung between gains and losses, with the mining sector showing sharp movements, while earlier in the month, diversified miners faced pressure from global commodity trends. Inflation remained subdued, strengthening the case for a further interest rate cut by the South African Reserve Bank; however, economic growth remained fragile. The unemployment rate rose to 32.9% in Q1 2025, and the RMB/BER Business Confidence Index dropped to 40, reflecting subdued private sector sentiment. Politically, the long-delayed 2025 fiscal framework was finally passed by Parliament in mid-June. Finance Minister Enoch Godongwana emphasized the importance of parliamentary oversight in budget execution.
The Geopolitical tensions remain elevated and although markets seem to be looking through this the macroeconomic environment faces challenges in the coming months that need to be considered within portfolios and the team is looking to position appropriately.
DI has maintained a cautious approach to asset allocation and we do not feel it is appropriate to amend based on the current macroeconomic outlook. Our current allocation reflects a balanced view of cautious optimism in the context of positive market momentum, while catering sufficient protection for the present risks. The slight upweighting in equities has been driven by positive market movement and reflects the appropriate positioning. The Team is comfortable with the current allocation and remains active in underlying construct and holdings with portfolios appropriately positioned to balance risk and reward utilizing a multi-asset class approach with equities, fixed income, structured notes and cash.
Market Performance
June saw another good month for markets despite some of the geopolitical volatility. The S&P500 was up 4.96% for the month, while the MSCI World was up 3.8%. The JSE was also positive producing 2.2% for June. As per the below chart the YTD performance for the S&P500 is up 5.5% (in USD) and the MSCI World is up 8.6% (in USD). Locally the JSE currently has a YTD performance of 14.7% (in ZAR).
Fixed Income
Global growth forecasts have been cut sharply, especially for the US and China, due to tariff uncertainty. Still, the US labor market is steady, and inflation is easing toward target levels. Financial conditions improved thanks to equity rallies and tighter credit spreads, reducing pressure on the Fed to cut rates. In contrast, central banks in Europe and Asia have eased policies to support growth. The Fed especially Chairman Powell is facing significant pressure from Trump to cut rates. As per the chart below inflation has trended the right way however, tariffs present an upside risk that the FOMC is cautious about.
Yield curves steepened globally, with Japan seeing a surge in long-term yields after a weak bond auction. High long yields attracted liability-driven investments. Credit markets recovered from tariff-related volatility, with high-yield spreads narrowing and investment-grade credit—especially BBB-rated—showing strength. European credit returns were boosted by currency gains for dollar investors.
Long-duration bonds underperformed in May, led by Japanese government bonds, while short-term Chinese and emerging market bonds gained. Inflation-linked bonds followed similar trends, with long-dated UK and US linkers posting losses but maintaining strong year-to-date returns.
South Africa’s fixed income market stayed stable in June 2025. Benchmark bond yields barely moved, with the 10-year at 10.09% and the 20-year at 11.27%. Despite global volatility and mixed economic signals, local bonds reflected cautious optimism. The South African Reserve Bank maintained a dovish stance, and inflation remained contained, though fiscal concerns and global risks lingered.
The rand showed relative strength, helping support bond market performance. For investors, South African bonds continue to offer attractive real yields.
Equities
In June 2025, U.S. equity markets experienced a dynamic mix of optimism and caution, shaped by macroeconomic developments, geopolitical shifts, and sector-specific trends. The month began with heightened volatility as President Trump’s announcement to double tariffs on steel and aluminium to 50% reignited trade tensions, particularly with China. This move, coupled with ongoing geopolitical uncertainty in the Middle East, initially weighed on investor sentiment and led to a cautious tone across global markets. Despite these headwinds, the technology sector – especially companies tied to artificial intelligence – provided a strong counterbalance. Firms like Nvidia, Micron, AMD, and Broadcom reported robust demand for AI chips and infrastructure, propelling the Nasdaq 100 to record highs by mid-to-late June. Nvidia’s stock surged on the back of bullish analyst forecasts and record-breaking valuations, while Micron’s upbeat earnings and guidance underscored the strength of AI-driven memory chip demand. The recent rally in stocks to all time highs does raise the question on valuation as outlined by the chart below and as we approach earnings season the team will be watching this closely.
Overall, June 2025 reflected a market navigating sectoral divergences, with mining and healthcare offering strength, while consumer-facing and industrial sectors faced more pressure. The performance suggests cautious investor sentiment, shaped by both global macroeconomic developments and domestic sector dynamics.
Conclusion
June 2025 was a month of contrasts: while AI and tech stocks drove market gains, broader economic and geopolitical uncertainties tempered enthusiasm. The resilience of equity markets was largely concentrated in a few high-growth sectors, highlighting a bifurcated market landscape. Ultimately there is strong market momentum despite the volatility. There remains an element of risk primarily as a result of geopolitical tension, particularly in the Middle East, as well as the overhang of trade policy and the looming 9 July deadline with few deals concluded to date. The Team believes portfolios are appropriately positioned to take advantage of further upside while providing some protection against risk and remain available for any detailed discussions as clients may wish.
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