Weekly Economic Update: July 2, 2025

U.S. bombs Iran’s nuclear facilities

If someone said we would see oil prices drop $10 per barrel and the S&P 500 hit a new high in the week after the U.S. bombed Iran’s nuclear production facilities, what would you say?^1,2 Well, it did happen. Almost immediately after the strike on three of Iran’s nuclear facilities and a very anemic (and telegraphed) retaliation from Iran, President Donald Trump announced a ceasefire last Monday, which has been holding so far.³

Oil, which had surged to over $75 per barrel, slumped when it was apparent Iran wouldn’t meddle in the Strait of Hormuz, through which 20% of the world’s oil flows.⁴ The price of oil also went down when it became apparent Iran’s oil production facilities were left untouched, so sales to China (which gets 40% of its oil from Iran) and India would continue to flow.⁵ The consequences of a massive disruption to those two economies would have been significant. Europe also would have been impacted by that type of disruption.

The good news is that a country that shouted “Death to [fill in Western nation here]” is nowhere near building a nuclear bomb anytime soon. There was some debate about the severity of the damage to Iran’s nuclear facilities and how long it would take Iran to recover, but we are focusing on the fact that our military did a difficult job well. They all returned home with no reports of civilians being killed or injured, and the world is a safer place with Iran not building an atomic bomb to threaten its neighbors.

Markets roared last week, with the S&P 500 adding almost 3.5% and closing at an all-time new high. Bond yields declined, which further fueled the rally through Friday until trade talks with Canada hit a snag on Friday afternoon and cooled things a little.^6,7 The Nasdaq Composite set its own record, gaining 105 points and topping its previous record closing high set on Dec. 16 of last year.⁸

Who would have thought we would be here in early April when we tumbled around 20%? There’s still a lot of 2025 left and plenty of twists and turns still to encounter, but things are going well for now.

Reconciliation bill, Q1 GDP and tariff suspensions to expire

There was other news besides the bombing of Iran and the subsequent ceasefire last week, but it was hard to compete with the news cycle that focused first on the strikes and then devolved into leaked intelligence accusations. Speculation about the extent of the damage and potentially 900 pounds of enriched uranium rolling around on a truck somewhere in Iran also captured imaginations (and headlines).⁹

The reconciliation bill continued to grind through the Senate, with President Trump’s July 4 deadline looming large.¹⁰ The final reading of first-quarter gross domestic product (GDP) didn’t improve; it was actually worse than the initial reading, although barely.¹¹ There were hopes we could avoid a negative print altogether, but those evaporated as the final number came in at -0.5%.

The tariff suspensions are expiring in early July.¹² If we don’t start seeing some deals before then, markets may start to lose their luster. Almost on cue, President Trump said on Friday afternoon that the U.S. was terminating all trade talks with Canada over what he called egregious tariffs on dairy products and a digital services tax on American tech companies. That sent markets into the weekend on a bit of a sour note, even though we notched a new record for the S&P 500.

Speaking of trade and tariffs, the Federal Reserve — specifically Fed Chair Jerome Powell — maintains tariffs will be inflationary and has refused to cut rates as a result. Yet, so far, inflation numbers don’t bear that out. The latest reading of personal consumption expenditures (PCE), the Fed’s preferred measure of inflation, came in at 2.7%, slightly higher than the prior month’s +2.6% rate.¹³ That’s hardly inflationary, but inflation isn’t really coming down further. Even if tariffs don’t increase inflation, that’s enough of an excuse for the Fed not to do anything with rates. Markets looked past the PCE reading to other news as they tried to drive to a strong close, but the Canada news dented an otherwise stellar day.

Coming this week

• It’s a short week as we celebrate our country’s 249^th birthday. Markets will be closed on Friday, July 4, for the holiday.
• The Iranian ceasefire appears to be holding, and “talks” are scheduled. It’s anybody’s guess how those will go, but Iran really doesn’t have any cards to play. Things should be fairly quiet on the geopolitical front.
• On Wednesday, ADP private sector job growth will hopefully rebound from an anemic +37,000 jobs last month and prove that number was a fluke.¹⁵ We’ll also get MBA mortgage applications on Wednesday.
• Thursday will bring weekly unemployment claims plus the Bureau of Labor Statistics (BLS) nonfarm payroll, the most closely followed gauge of employment in the U.S. Last month’s number was lukewarm, and if we see weakness again, we could start hearing whispers of a Fed rate cut in late July.¹⁶
• Trading volumes should be light this week. Markets are currently pricing in the reconciliation bill hitting Trump’s desk for signature by July 4; if the bill gets hung up in some way, markets could get testy.

Sources:

¹ Business Insider. “Oil (WTI).” https://markets.businessinsider.com/commodities/oil-price?type=wti. Accessed June 29, 2025.

² Yahoo! Finance. “S&P 500 (ˆGSPC).” https://finance.yahoo.com/quote/%5EGSPC/. Accessed June 29, 2025.

³ Helen Regan, et al. CNN. June 25, 2025. “June 24, 2025 – Israel-Iran conflict.” https://edition.cnn.com/world/live-news/israel-iran-conflict-us-trump-06-24-25-intl-hnk. Accessed June 29, 2025.

⁴ John Liu and Chris Isidore. CNN. June 23, 2025. “What is the Strait of Hormuz and why is it so significant?” https://www.cnn.com/2025/06/23/business/strait-of-hormuz-iran-israel-explainer-intl-hnk. Accessed June 29, 2025.

⁵ The Economic Times. June 22, 2025. “Israel is not yet willing to touch Iran’s most sensitive nerve.” https://economictimes.indiatimes.com/news/international/global-trends/kharg-island-oil-terminal-israel-is-not-yet-willing-to-touch-irans-most-sensitive-nerve/articleshow/122021340.cms?from=mdr. Accessed June 29, 2025.

⁶ CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US.10. Accessed June 29, 2025.

⁷ Natalie Sherman. BBC. June 27, 2025. “‘We have all the cards’ – Trump says he is ending Canada trade talks.” https://www.bbc.com/news/articles/ckg629n7wzvo. Accessed June 29, 2025.

⁸ Yahoo! Finance. “NASDAQ Composite (ˆIXIC).” https://finance.yahoo.com/quote/%5EIXIC/. Accessed June 29, 2025.

⁹ Brendan Cole. Newsweek. June 25, 2025. “Iran’s Enriched Uranium Is Missing – Nuclear Watchdog IAEA.” https://www.newsweek.com/iran-uranium-missing-iaea-grossi-2090434. Accessed June 29, 2025.

¹⁰ Matthew Dickerson. Economic Policy Innovation Center. June 29, 2025. “Comparing The House And Senate Reconciliation Bills.” https://epicforamerica.org/federal-budget/comparing-the-house-and-senate-reconciliation-bills/. Accessed June 29, 2025.

¹¹ Bureau of Economic Analysis. June 26, 2025. “Gross Domestic Product, 1^st Quarter 2025 (Third Estimate), GDP by Industry, and Corporate Profits (Revised).” https://www.bea.gov/news/2025/gross-domestic-product-1st-quarter-2025-third-estimate-gdp-industry-and-corporate-profits. Accessed June 29, 2025.

¹² Yahoo! Finance. June 29, 2025. “Trump tariffs live updates: Trump does not expect to extend July 9 tariffs deadline: ‘I don’t think I’ll need to.’” https://finance.yahoo.com/news/live/trump-tariffs-live-updates-trump-does-not-expect-to-extend-july-9-tariffs-deadline-i-dont-think-ill-need-to-200619822.html. Accessed June 29, 2025.

¹³ Bureau of Economic Analysis. June 27, 2025. “Personal Income and Outlays, May 2025.” https://www.bea.gov/news/2025/personal-income-and-outlays-may-2025. Accessed June 29, 2025.

¹⁴ Bureau of Labor Statistics. June 3, 2025. “Job Openings and Labor Turnover – April 2025.” https://www.bls.gov/news.release/pdf/jolts.pdf. Accessed June 29, 2025.

¹⁵ ADP Research. May 2025. “ADP® National Employment Report.” https://adpemploymentreport.com/. Accessed June 29, 2025.

¹⁶ Bureau of Labor Statistics. June 6, 2025. “Employment Situation Summary.” https://www.bls.gov/news.release/empsit.nr0.htm. Accessed June 29, 2025.

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