Small caps led the way in June while SPX and NDX took a breather.
Equities registered mixed results in June. Some of the key drivers included hawkish Fed expectations, volatile energy prices, and rotation across asset classes and sectors. Following a return of 5.26% in May (total return), SPX (the S&P 500) returned -0.95% (total return) in June. After returning 10.58% (total return) in May, NDX (the Nasdaq-100) returned -0.12% (total return) in June. The Russell 2000 returned 3.74% (total return) in June after a total return of 4.37% in May. SPX & NDX remained above their 200-day moving averages in June, which we will illustrate later in this note.
High Yield, International equities and Real Estate were positive in June, while Bitcoin was negative. Following a return of 0.49% in May (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.27% (total return) in June. Following a return of 3.18% in May (total return), the MSCI EAFE Index returned 0.09% (total return) in June. Following a return of -1.12% in May (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned 1.37% (total return) in June. Bitcoin returned -20.14% in June (Bloomberg Bitcoin Index) after returning -3.81% in May. Additionally, MLPs and Ethereum were mixed in June. Following a return of -4.76% in May (total return), MLPs (MerQube North America MLP & Infrastructure Total Return Index) returned 1.49% (total return) in June. Following a return of -10.87% in May, Ethereum (CME CS ETF-USD Ref Rate) returned -21.77% in June.
During June, fixed income markets were mostly driven by sticky inflation reports and hawkish expectations of future monetary policy. Interest rates remained elevated, and the short-end underperformed. The 10-yr closed at 4.46% to end June, up from 4.43% at the end of May, and above the key 4.20%-4.40% technical range. The 30-year Treasury yield ended June at 4.95%, slightly down from 4.97% at the end of May. Credit spreads widened in June. Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so. Additionally, the 2/10 Treasury yield spread narrowed once again June. The 2/10’s record-long inversion came to an end in the second half of 2024.
The FOMC left rates unchanged in June. They last lowered the policy rate to a target range of 3.50% – 3.75% in December. The next Fed meeting will take place on 7/28-7/29. Looking ahead, and as of the end of June, the market has priced-out a rate cut and has priced-in 1-2 rate hikes in 2026. The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot. However, the Fed has cut rates multiple times despite inflation remaining above the 2% target. Furthermore, the shaky employment picture could play a role in future policy.
Another notable datapoint from June was the release of May’s inflation data: CPI printed 0.5% M/M, matching the consensus. Core CPI printed 0.2% M/M, below the 0.3% the consensus. PPI printed 1.1% M/M, above the 0.7% consensus. PCE printed 0.4%, below the 0.5% consensus. Core PCE printed 0.3%, matching the consensus. Additionally, and according to FactSet, the trailing 12-month P/E ratio for SPX is 27.8, which is above the 5-year average (24.5), and above the 10-year average (23.5). The forward 12-month P/E ratio for SPX is 20.5, which is above the 5-year average (19.9), and above the 10-year average (19.0). Furthermore, per FactSet, SPX is expected to report Y/Y earnings growth of 23.3% for Q2 2026, which is above the estimate of 18.8% on 3/31/2026. Finally, per FactSet, SPX is expected to report Y/Y revenue growth of 12.2% for Q2 2026, which is above the estimate of 9.5% on 3/31/2026
Within commodities and currencies: WTI Crude Oil fell in June by roughly 18% to close near $71/bl. Gold fell by roughly 12% in June and closed out the month near $4015/oz. Finally, the USD/DXY rallied M/M and closed out June near 101. 2025 was one of the weakest years for the USD in several decades, and the first six months of 2026 have registered a higher dollar.
VOLATILITY UPDATE
After closing out May near 15.25, the VIX Index finished June near 16.50 as volatility slightly rose alongside hawkish Fed expectations and a more volatile SPX/NDX. The 12-month high of the VIX Index was registered on 3/9/26 at 35.30. In 2022, the VIX averaged over 25. In 2023, the VIX averaged near 17. In 2024, the VIX averaged near 15.50. And in 2025, the VIX averaged near 19.
The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities. It is thought of as “The VIX Index of the Bond Market.“ After closing out May near 70, the MOVE Index closed out June near 72. The 12-month high of the MOVE Index was registered on 3/26/26 at 115.02. Traders will continue to monitor this index to gauge potential future bond and equity volatility. Equities tend to favor a subdued MOVE Index – and a low MOVE Index has mostly been the
Source: Morningstar Direct
LOOKING AHEAD
Among other factors, the market will be adjusting to and watching US-Iran war headlines, US trade policy headlines, employment data, inflation, earnings, yields, and monetary policy. On the inflation front, June’s CPI will be released on 7/14, and PPI will be released on 7/15. Finally, the next FOMC meeting will take place on 7/28-7/29, and the market is expecting no change.
