Despite the S&P 500's Gains in June, Iran Attacks and Tariff Concerns Should Cause Investors to Rethink Their Risk Stance

Mounting concerns over tariffs and escalating tensions in the Middle East are beginning to overshadow the S&P 500’s modest gains in June, signaling a potentially rough road ahead for investors as summer approaches. After a strong bounce-back in May, the index recently came within striking distance of its record high.

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Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, cautioned that the market may be entering what he called the “greater-fool phase.” In an interview with MarketWatch, he advised investors to avoid chasing stocks at elevated levels, arguing that the current risks outweigh the potential rewards—at least for now.

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Despite a slight 0.2% dip, the S&P 500 remains up 0.9% for June. However, it still sits 2.9% below its all-time closing high reached on February 19. Samana believes the recent rally masks deeper vulnerabilities in the market, including lingering uncertainty around U.S. tariff policies.

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One key issue is the expiration of a temporary White House suspension on select tariffs in July. This looming deadline has added to investor anxiety, already heightened by developments in the Middle East. Over the weekend, former President Donald Trump announced joint U.S.–Israeli airstrikes on Iranian nuclear facilities—an operation he hailed as a "spectacular military success." Pentagon officials, including Air Force Gen. Dan Caine, confirmed that evaluations of the strike’s effectiveness were ongoing as of Sunday.

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The renewed hostilities between Iran and Israel have led many analysts, including Stephen Innes of SPI Asset Management, to conclude that hopes of containing the conflict have now evaporated. For markets, the geopolitical tension has become a top concern. Samana warned of a “dual shock” scenario—where oil prices climb higher, intensifying inflation, while also suppressing economic growth.

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Indeed, crude oil prices have already surged, with U.S. benchmark West Texas Intermediate trading around $74 a barrel, according to FactSet. Samana emphasized that the Federal Reserve is already dealing with enough stagflationary pressures, even before factoring in the potential economic fallout from fresh tariffs or a prolonged Middle East conflict.

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Fed Chair Jerome Powell reaffirmed these concerns at the conclusion of the central bank’s most recent policy meeting, noting that tariffs could both boost inflation and restrain economic momentum. However, not all officials within the Fed see things the same way.

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Governor Chris Waller, who is widely considered a potential successor to Powell, offered a more optimistic view in a recent television interview.

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He suggested that tariff-driven price increases are unlikely to trigger lasting inflation and advocated for a return to interest rate cuts as early as next month. The Fed held rates steady in a unanimous decision during its June meeting, maintaining the current range of 4.25% to 4.5%.

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The Fed’s updated economic projections reflected a cautious outlook. Policymakers now anticipate that U.S. GDP will slow to 1.4% this year, while the unemployment rate could rise to 4.5%. Core inflation, based on the personal consumption expenditures (PCE) index—which excludes food and energy—is forecast to reach 3.1%. Charles Schwab strategist Kevin Gordon said these figures reflect a clear “stagflationary flavor,” especially as the Fed seems to expect ongoing economic headwinds tied to trade policy into 2025.

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Investors will be watching closely this week for several new data points, including the May core PCE reading, a revised estimate for first-quarter GDP, flash PMIs for services and manufacturing, and this month’s consumer confidence numbers. Also on tap is Powell’s semiannual testimony before the House Financial Services Committee, where he will present an update on monetary policy.

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Despite modest gains in 2025, increased volatility has dampened the S&P 500’s risk-adjusted performance. David Kostin, chief U.S. equity strategist at Goldman Sachs, said uncertainty around trade has been a primary drag on returns. He noted that the index’s annualized risk-adjusted return—measured similarly to a Sharpe ratio—stands at just 0.1 so far this year, compared to a long-term median of 1.0.

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The Cboe Volatility Index, or VIX, which reflects investor fear, rose 2.4% on Saturday to 20.62, though it remains below the highs seen in April when tariff fears first erupted.

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Several important deadlines now loom on the trade front. A 90-day pause on reciprocal tariffs ends on July 9, and a separate delay on levies aimed at China expires August 12. Scott Wren of Wells Fargo noted that the U.S. and China have a basic framework in place, but time is running out to finalize a more comprehensive agreement.

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Wren also flagged fiscal concerns as another potential source of volatility. Congress must raise the debt ceiling by late July or early August to prevent the Treasury from running short on cash—an event that could force delayed government payments.

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In Sundays' session, the Nasdaq Composite fell 0.5%, the S&P 500 slipped 0.2%, and the Dow edged up 0.1%. Wells Fargo’s year-end forecast for the S&P 500 stands at 6,000, just above its latest close at 5,967.84. But Samana’s advice remains firm: with risks piling up, now is not the time to take on more exposure. “The risk-reward just isn’t all that favorable anymore,” he said.

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