Markets Soar on Rate Cut Hopes, Job Strength

Transcript

Hi, welcome to market weekend review for the week ending June 27th, 2025. I'm Paul Edman, global chief investment strategist for Russell Investments. And um yeah, I say in short, this week has been a phenomenal week for global financial markets. We're tracking returns on both uh US and global equities of around 3% on the week to Thursday's close, which is a really um outstanding result. And that positivity extends beyond the equity market where even in fixed income sovereign rates have been declining uh with the US 10-year Treasury yield for example uh down 13 basis points again on the week to Thursday's close. So strength of both across uh the equity and fixed income complex under the hood of that in terms of uh fundamental drivers of the move. It's been actually a pretty quiet week but a couple of things stand out to us from a monetary policy perspective. Uh at the start of this week, we had chatter from uh two Fed governors, Mickey Bowman and Chris Waller, suggesting they could be open to another Fed rate uh cut as early as their next meeting in July. Uh which I think caught the financial markets by surprise. Uh later in the week though, Chair Pal is a little bit more measured than that uh in his semiannual monetary policy report to Congress. It seemed like Pal wanted to see two more good inflation reports for the months of June and July before he'd be willing to cut interest rates in a world of uh resilient economic activity. That would set the stage uh a little bit more likely for the next Fed move being in September instead of July. And September's uh our baseline expectation for the Fed's next rate cut. Uh either way though, I think that was still a message across the sort of set of Fed leadership that they still have an easing bias here at some stage over the next uh several meetings and months. Uh and I think that was supportive for fixed income markets. From an economic perspective, um we did get another update on initial jobless claims this week. Um and they did step down for the first time in a few weeks, which was encouraging to see. And I'd say broadly across a range of different labor market um indicators, we're still not really seeing any evidence of a notable rise in layoffs from the corporate sector here yet. And that's good news and quite important as a backs stop in support for the US consumer which is uh the bedrock for the US economy. Our outlook and expectation is that the US can continue growing here over the course of the next 12 months uh with slower but still positive growth over the remainder of 2025 and into 2026. Finally, around um sort of the ongoing policy dynamics, uh the one big beautiful bill is still kind of working its way through Congress, but one of the very specific provisions within that that gotten quite a lot of attention, particularly from non- US investors, has been this item known as section 899 or what's also been called the revenge or retaliatory tax. Um and this week on Thursday, Treasury Secretary Scott Bassent actually has now encouraged uh the leadership in both the House and Senate to remove that um retaliatory tax provision from the one big beautiful bill. Uh following on some discussions and negotiations with that he's had with his uh peers globally. I think that'll be a bit of a sigh of relief for investors globally as they're thinking about the tax treatment of their US holdings. Uh but again in short a very strong week for financial markets particularly in equities but also for bonds on the back of um some healthy fundamentals and a US Federal Reserve that still looks like it's willing to cut interest rates at some point here over the next several meetings. Uh that's all I have for this week. I hope you stay tuned for next time. Thanks a lot. Bye. Hi, I'm Sophie Antaly, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key Takeaways

Stocks approach record highs
U.S. jobless claims dip
“Revenge tax” dropped from U.S. bill

On the latest edition of Market Week in Review, Global Chief Investment Strategist Paul Eitelman explored key drivers behind the strong performance in markets. He also provided an update on a proposed U.S. tax measure.

Strength in Numbers

Eitelman started by noting financial markets have had an outstanding week, with both U.S. and global stocks up about 3%. On Thursday, the S&P 500 closed just shy of an all-time high, while the MSCI All-Country World Index—which tracks global stocks—logged a new record high.

He said the positive performance wasn’t limited to just stocks. “On the fixed income side, government bond yields declined notably, with the 10-year U.S. Treasury yield falling by 0.13%,” Eitelman noted.

Comments from U.S. Federal Reserve (Fed) officials helped power markets higher, he said. Earlier in the week, two Fed governors suggested they’re open to a rate cut as soon as July, catching investors by surprise. While Jerome Powell’s remarks to Congress later in the week were more measured—with the Fed chair saying he wants to see two more good inflation reports first—the overall message from central bank leaders was that they’re leaning toward future rate cuts.

“Our baseline expectation is for the Fed to lower rates in September,” Eitelman stated.

Slow But Steady

He said another factor lifting markets this week was more evidence of resilience in the U.S. labor market. In an encouraging sign, initial jobless claims declined for the first time in a few weeks. In addition, the layoff rate in the corporate sector remained relatively unchanged.

“Both of these numbers are great news for consumers, who are the bedrock of the U.S. economy,” Eitelman noted. Overall, he expects the U.S. to grow at a slower, but still-positive pace over the next 12 months.

Tax Axed

Eitelman finished with a look at the latest developments in U.S. policy. He said the “One Big Beautiful Bill” is still working its way through Congress, with President Donald Trump hoping to sign the legislation early next month.

One part of the bill that’s received plenty of attention is Section 899, also known as the “revenge tax” because it would raise withholding taxes on some foreign investors. On Thursday, Treasury Secretary Scott Bessent asked Congressional leaders to remove this provision from the bill following discussions with global peers.

“Global investors are likely to breathe a sigh of relief at this development,” Eitelman said, noting the proposed rule had unnerved some investors outside of the United States.

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