Labor Market Softens, Inflation Cools, and Global Tensions Weigh on Markets

Matthew Rubin Chief Investment Officer

 

1. Jobless claims held at 248,000, with continuing claims rising to a three-year high, signaling a cooling labor market.¹
2. Inflation eased in May, keeping hopes alive for one or two Fed rate cuts later this year.
3. Middle East tensions, sparked by Israeli and Iranian strikes, drove stocks lower and oil prices higher, as investors moved into safe-haven assets like gold and the U.S. dollar.

 

1. Jobless Claims Hold at Eight-Month High as Continuing Claims Rise

Initial jobless claims held steady at 248,000 last week, matching the highest level seen since October.¹ While seasonal factors, like the end of the school year, may be to blame, economists are watching to see if this trend continues. The four-week average for initial claims also rose to 240,250, its highest level since August 2023.¹ Meanwhile, continuing claims jumped to 1.95 million, the highest since late 2021, suggesting it’s taking longer for laid-off workers to find new jobs.¹ Despite these signs of strain, experts are not yet concerned about a major downturn in the labor market. Still, the steady climb in claims could point to growing challenges for job seekers as demand for workers cools. If the trend persists into July, it may signal a more meaningful shift in labor market conditions.

2. Inflation Cools in May, Rate Cuts Still on the Table

Inflation came in softer than expected in May. Headline consumer prices rose just 0.1% for the month and 2.4% over the past year.² Core inflation, which leaves out food and energy, also rose 0.1% for the month and 2.8% year-over-year.² A key driver was the slowdown in core services, which rose 0.2% for the month and 3.6% year-over-year; the slowest pace since late 2021.² Core goods prices were flat for the month and up just 0.3% from last year, showing little impact from tariffs so far.² Some companies may be absorbing tariff costs, expecting those rates to fall over time. While inflation is trending lower, tariffs could still push prices up in the future. Even so, many believe the Federal Reserve is likely to cut rates once or twice later this year but will move slowly. However, this is contingent on economic conditions continuing to stabilize.

3. Markets Drop as Middle East Tensions Rise

Tensions in the Middle East weighed on markets Friday. The S&P 500 finished the week down about 0.4% amid news that Israel struck Iran’s nuclear and military sites Thursday night.² Iran responded with drone attacks. Oil prices surged 8% Friday morning on fears of supply disruptions.² This led investors to seek safer assets like gold, which was up 1% at midday on Friday.² Treasury yields remained steady, with the 10-year yield falling to 4.4% from 4.5% over the last five days.² However, most major indices are still up for the year. While the situation is fluid, markets are closely watching for signs of further escalation. A prolonged conflict could push energy prices higher and impact global growth.

For the period ending 6/13/25.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ MarketWatch
² Factset

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