Market Minute: ‘June Swoon’ Takes Hold: What’s next for stocks?!
After a massive rally over the first two months of the current quarter, maybe stocks were overbought and due for a healthy pullback.
U.S. equities pulled back sharply Wednesday as a combination of rising inflation pressures, escalating geopolitical tensions, and renewed weakness in technology stocks shifted investor sentiment firmly into risk-off territory.
The benchmark S&P 500 Index fell 1.6% and the tech-heavy Nasdaq-100 (NDX) dumped nearly 2% on Wednesday. The S&P 500 is now down over 4% in June and the Nasdaq-100 is off 6% this month.
The culprits for the equity weakness are clear. While markets were stretched heading into June on a technical and valuation basis, stellar earnings this past quarter lent some credibility to the rally in April and May. But concerns are rising as inflation has accelerated since the start of the U.S. – Iran conflict. The Consumer Price Index (CPI) released Wednesday reflected this with the headline year-over-year level coming in at 4.2%. This was the highest level since April of 2023 and was in line with expectations. The Core (excluding volatile energy and food) came in at expectations of 2.9% YoY. Rising oil is acting as both an inflation catalyst and a macro uncertainty shock.
Geopolitical tensions are also rising this week. Escalating tensions between the U.S. and Iran, including threats of further military action, weighed heavily on sentiment. This sent crude oil prices rising with WTI futures moving back above the $90-per-barrel level. U.S. Central Command forces launched more “self-defense strikes” against Iran late Wednesday, according to their post on the social media platform X. This may continue to impact markets despite recent commentary that a deal to end the conflict in the Middle East was close.
Volatility spiked on Wednesday with the CBOE Volatility Index (VIX) closing above the 22 level, its highest level in two months. Chip stocks extended their recent pullback, with names like Nvidia (NVDA), Broadcom (AVGO), AMD, and Micron (MU) all down between 3 and 5% on Wednesday. The S&P 500 information technology sector fell over 2% yesterday and is down 8% in the month of June as of yesterday’s close. After hitting all-time highs just over a week ago, the sector is facing profit-taking, stretched valuations, and disappointment relative to elevated expectations. The biggest leadership group of 2025–2026 is now a key drag on the broader market.
Together, these forces are pushing investors to reduce exposure to high-growth sectors and rotate into defensives, while volatility picks up. What could turn the tables for Investors? The drivers of the rally AI spending, resilient economic data, and corporate earnings - haven’t fundamentally broken despite the ‘June Swoon’. Despite the recent weakness, the broader setup for stocks still leans constructive and this may be a pause within an ongoing uptrend rather than a fundamental shift lower.
A resolution to the Middle East conflict could provide a positive outlook but there is still daily headline risk at the moment. Pullbacks are historically healthy for markets, and this may be another one of those situations for equities.
