With this week’s U.S. attack on Iranian nuclear facilities in the rearview mirror, stock market analysts expect some calm before any storm over the next month or so.
The CBOE Volatility Index (VIX) seems to agree, with the market stability gauge down from 21.76 on June 13, when the Israel-Iran military conflict showed signs of escalating, to 16.3 on June 27, a few days after the U.S. bombing of Iran’s nuclear arsenal at Fordo, Isfahan and Natanz. The sites were “completely and totally obliterated,” according to the White House, though a leaked intelligence report said Iran’s nuclear program was only set back by a few months. In any case, Israel and Iran agreed to a ceasefire that was still intact as of June 27.
Iran’s atomic bomb capabilities have historically been a thorn in the side of at least three presidential administrations, with Presidents Barack Obama, Joe Biden and Donald Trump taking steps to limit the Middle Eastern country’s nuclear capabilities. Through that prism, any dismantling of Iran’s nuclear capabilities is not only a major step toward geopolitical stability in the Middle East, but it should be good news for a U.S. stock market that historically craves stability.
“The nation’s overall economic health looks good, and now that the Iran matter seems largely settled, I expect good growth in the market to continue,” says Rick Miller, an investment advisor at Miller Investment Management.
With the heat dialed down in the Middle East, what do other major market-moving issues look like at the midpoint of 2025? Here’s a closer look at the most significant flash points:
— Economic stability.
— Recessionary threats.
— What will the Federal Reserve do?
— The U.S. job market looks sketchy.
— Tariff troubles continue.
— Stabilizing investor sentiment is a necessity.
Economic Stability
The U.S. economy remains relatively stable, but there are growing pockets of risk.
“Market performance has held up, but that masks the complexity companies are facing behind the scenes, especially those operating across borders,” says Ravi de Silva, founder of de Risk Partners, a risk advisory firm specializing in sanctions, financial crime and geopolitical risk.
With sanctions tightening and regulatory developments accelerating, the risk landscape is becoming harder to navigate. “For businesses with global exposure, especially in logistics, manufacturing or finance, the environment feels more uncertain than the broad market suggests,” de Silva says.
Recessionary Threats
The odds of a U.S. recession are declining heading into the summer months, which are typically a quieter time for the stock market. In a recent research report, analysts at JPMorgan Chase & Co. (ticker: JPM) pegged recession odds at 40%, down from 60% in the spring.
However, the economy and the stock market may still be in a precarious position.
“While the whipsaw from the imposition of extremely high tariff rates to the rolling back of many of the most draconian levies has allowed stocks to rally back near all-time highs, the lagged effects of the uncertainty and what tariffs remain on economic activity have yet to be fully realized,” said Ben Bakkum, senior investment strategist at Betterment. “It’s reasonable to expect economic growth to continue to slow in 2025 on the back of the trade policy shock and an environment of still-elevated interest rates.”
Bakkum, who says a recession is not a “foregone conclusion” at the moment, also believes the stock market environment isn’t considered too risky for investors. “At almost any point in time, various risks threaten market returns, but we know that, over time, the broad market and a diversified portfolio of financial assets tend to rise with long-term trends of economic and corporate earnings growth.”
What Will the Federal Reserve Do?
While Trump continues to put pressure on Federal Reserve Chairman Jerome Powell to lower interest rates, the Fed remains cautious, ostensibly to maintain its focus on the White House’s lingering tariff policy.
JPMorgan noted in its report that the Fed is not expected to start easing until December, “with three sequential cuts thereafter, reaching a policy rate of 3.25% to 3.5% by the second quarter of 2026.”
One stubborn red flag on the Fed front is persistent inflation. Core personal consumption expenditures (PCE) increased by 2.7% in May — slightly higher than April’s 2.6% reading and well above the Fed’s 2% target.
“Inflation continues to hover above the targets set by the Fed and other major central banks, even after several rounds of interest rate hikes,” says John Murillo, a longtime Wall Street trader and chief business officer at B2Broker, a global fintech solutions provider for financial institutions. With the Fed now expecting core PCE to surpass 3% by the end of 2025, the central bank should tread cautiously, Murillo says.
“The current inflation situation appears to have a structural nature, particularly with what we refer to as a ‘sticky’ inflation: Prices for essentials such as housing, health care and food remain high, even as the overall inflation rate begins to decline,” he notes. “We also see diverging monetary signals, which is another worrying sign of a potential recession alongside soaring consumer prices.”
[Read: Best Investments for the Pause in Fed Rate Cuts]
The U.S. Job Market Looks Sketchy
The Fed expects the U.S. unemployment rate to reach 4.3% to 4.5% by the end of the year, which essentially throws another log on the recession bonfire.
“The primary risk to the stock market lies in a labor market that starts to break,” Bakkum notes. “That is, payrolls start to contract month to month, and the unemployment rate slides higher. This event would represent a shift from a resilient and virtuous cycle of more jobs supporting consumption and in turn creating more jobs, to a vicious cycle where fewer jobs weaken consumers’ finances, reducing demand and causing even more job cuts.”
Tariff Troubles Continue
The U.S.-China tariff dance continues, with Trump declaring on June 26 that both countries had signed a May trade truce that extends a 90-day pause on “reciprocal” tariffs, among other provisions. The White House is also working on trade deals with various other countries included in Trump’s April 2 “Liberation Day” raft of import levies.
Even so, U.S. tariff activity continues to percolate, which sends more uncertainty into the stock market hive.
“It’s easy to forget that even after deals have been struck, throwing out the highest proposed tariff rates, sectoral tariffs and a 10% baseline still represent a significant increase in import taxes that will roil pockets of the economy,” Bakkum says.
Even if Trump permanently rolls back high tariffs on other countries, elevated import duties on specific products could remain in place.
“Sector tariffs are a more likely longer-term solution, such as those applied to autos, steel and aluminum. There are also tariffs that remedy trade practices deemed to be unfair, which were already being used to set some tariffs on China,” said JPMorgan economist Abiel Reinhart in a June 9 research report.
The Court for International Trade has already ruled that tariffs imposed under the International Emergency Economic Powers Act are unlawful, the JPMorgan report notes.
“The court order makes tariff scenarios murkier in the short term,” said Bruce Kasman, chief global economist at JPMorgan. “However, tariffs are a central pillar of this administration’s economic agenda. The path and the distribution across countries and sectors are uncertain, but we continue to believe that the average effective tariff rate should eventually settle around 15% to 18%.”
Stabilizing Investor Sentiment Is a Necessity
With the VIX down and the S&P 500 up 23% from its lowest close of the year in early April, there should be enough evidence of growth to placate skittish investors, at least for now. That’s a good sign for the stock market, experts say.
“Panic is not a strategy,” says Gideon Alper, a founder of Alper Law, an estate planning and asset protection firm in Oviedo, Florida. “In uncertain markets, the worst move is often a drastic one.”
Investors should re-evaluate their exposure to high-risk growth stocks and consider rebalancing toward defensive assets, Alper advises. “This doesn’t mean abandoning equities — it means diversifying with intention,” he says. “If your portfolio only works in bull conditions, it’s not built to last.”
Alper also encourages Main Street investors to curb any emotional trading tendencies.
“Chasing headlines or pulling out at the bottom locks in losses and erodes long-term gains,” he notes. “The market will always be cyclical, and history shows those who stay disciplined fare better than those who try to time the perfect exit. Stick to a plan, review your risk tolerance and, if necessary, get professional advice before making big decisions.”
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Update 06/27/25: This story was published at an earlier date and has been updated with new information.
