Market Update - June 23, 2025
Following the U.S. airstrikes on Iranian nuclear facilities, markets opened the trading week mostly unphased. As with all geopolitical conflict in the Middle East, investors must assess the weekend’s events first in the context of the oil market. Any disruption to the flow of oil or the energy infrastructure in the region will almost certainly have downstream impacts on economies across the globe. Oil prices rose over the weekend only to plummet on Monday on the premise of de-escalation. Notably, oil prices remain well below their YTD highs. The crude market, still reflecting an oversupply, does not anticipate a high likelihood of Gulf energy infrastructure being targeted or Iran closing the critical Strait of Hormuz shipping channel. Iran’s retaliatory attack on U.S. assets in the region Monday afternoon is seen as measured and de-escalatory.
The stock market has largely brushed off the weekend’s events in the region. All major U.S. indices rose on Monday. In the bond market, a drop in rates appears more a result of Fed chatter about cutting soon than a rush to haven. Gold’s tepid reaction is further evidence investors are not concerned. This could all change if Iran changes its mind about the Strait of Hormuz or if their retaliation brings U.S. fatalities. For now, markets seem to be waiting to see how the conflict—and subsequent impact on crude supplies—evolves.
If the conflict does expand, we would likely see a flight to quality U.S. Treasuries. The yield curve may steepen if a spike in oil reverses the inflation trend. Lower quality corporate spreads are worth monitoring closely, as further escalation and impact on the global economy would likely result in spread widening.
The risk of higher oil prices and corresponding negative impacts on markets and inflation remain very real possibilities as tensions between Israel and Iran persist. A prolonged closure of the Strait of Hormuz is likely a low probability event as it would be counterproductive to Iran’s economic needs.
At Madison Investments, our investment teams continue to monitor these risks.
Madison Investments