Choppy Waters: The Fed, AI, and Your Investments

Fresh news and strategies for traders. SPY Trader episode #1251. Hello, Spy Traders, and welcome back to the only podcast that makes market moves make sense! I'm your host, Market Maverick Mike, and it's 6 pm on Thursday, June 19th, 2025, Pacific Time. We've got a lot to unpack after a mixed week and a federal holiday, so let's dive right in. The U.S. stock market is heading into Friday after a somewhat choppy week. Before the Juneteenth holiday, on Wednesday, the Dow Jones Industrial Average dipped slightly by 0.1%, and the S&P 500 was fractionally lower, down 0.03% to 5,980.87 points. However, the techheavy Nasdaq Composite managed to nudge up by 0.13% to 19,546.27 points. Overall, the S&P 500 is still up 8.33% from a year ago, showing some underlying resilience. When we look at sector performance, it's been a tale of two markets. Technology and Communication Services continue to be the stars, largely thanks to the strong demand for artificial intelligence, with companies like Marvell Technology jumping 7% after its Custom AI event and IBM shares hitting an alltime high, up nearly 30% this year. On the flip side, Consumer Discretionary has seen declines, and Health Care has been a bit of a laggard yeartodate, with losses from big names like Eli Lilly and UnitedHealth. The Federal Reserve made headlines on June 18th by keeping the federal funds rate unchanged at 4.25% to 4.50% for the fourth straight meeting. They did signal the likelihood of two rate cuts later in 2025, which is a slight increase from their previous projection. But here's the kicker: they also raised their inflation forecast, with core PCE now expected to hit 3.0% by yearend, and they downgraded their GDP growth forecast for 2025 to 1.4%. Fed Chair Jerome Powell was clear that inflation remains somewhat elevated, and tariffs could make commodity prices tick higher. On the geopolitical front, the ongoing conflict between Israel and Iran continues to be a source of market volatility, stirring concerns about crude oil supply. Good news on the trade front, though: there are reports of an agreement reached between the U.S. and China on trade and tariffs in London. Now, let's get into the analysis and what this all means for your portfolio. The market is in a bit of a tugofwar. On one side, we have strong corporate earnings, especially from those big tech players, and expectations of easing monetary policy. On the other, we're facing significant macroeconomic and geopolitical headwinds. The Fed's 'wait and see' approach, coupled with a split among FOMC members, means the path to lower rates isn't guaranteed and is very much datadependent. The raised inflation forecast and lower GDP projections signal a slowing economy, which could put pressure on corporate earnings outside of the strongest sectors. And let's not forget those geopolitical risks; the Middle East conflict has a track record of sparking market volatility. While the overall market might appear moderately valued, growth stocks are still trading at a premium, implying that a lot of good news has already been priced in for those high flyers. So, what's a savvy Spy Trader to do? Here are our recommendations. First, maintain diversification but consider tilting towards value and defensive sectors. With a slowing economy and persistent inflation, value stocks, which are currently at a discount, could offer more resilience. Think Utilities and certain Consumer Staples. Second, selective exposure to highgrowth tech and AI is still a smart move. Demand for AI is robust, driving earnings for key players. Focus on individual companies with strong balance sheets and clear competitive advantages, not just broadbrush exposure. Third, keep a close eye on geopolitical developments. The IsraelIran conflict can quickly impact energy markets and overall sentiment. Be prepared to adjust if tensions escalate significantly. Fourth, always emphasize quality and strong fundamentals. In uncertain times, companies with solid balance sheets, consistent cash flows, and proven profitability are your best friends. Fifth, don't forget international diversification. International markets have actually been outperforming the S&P 500 yeartodate, so exploring global equity funds could enhance your portfolio diversification. And finally, stay liquid and patient. With volatility likely to continue and the future of monetary policy still somewhat murky, having cash on hand allows you to seize opportunities when market pullbacks occur. Avoid overleveraging, and focus on your longterm investment goals. That's all for today's Spy Trader. Thanks for tuning in, and remember, stay informed, stay diversified, and keep those eyes on the market!