Morning in New York: Middle East conflict increases uncertainty

Daily review and forecast of events on the US stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The confrontation between Israel and Iran remains in the center of attention of the investment community. After the closing of the main trading session on June 16, there were several significant events related to this agenda. G7 leaders issued a tough statement, emphasizing that Iran should not get nuclear weapons and calling for de-escalation of the conflict. Donald Trump spoke in favor of evacuating the residents of Tehran and left the G7 summit early to return to Washington. All of this caused a renewed rise in oil prices and put pressure on U.S. stock futures.

Immediately after the US leader's statement about the need to evacuate people from the capital of the Islamic republic, Iran's Fars news agency reported explosions to the east of it. In parallel, rumors emerged that the US offered Iran to hold urgent talks on the nuclear deal, but Trump denied linking his departure to attempts to negotiate with Tehran. The escalating international situation increases uncertainty and concerns of the investment community about global security.

The key macro statistical release today will be retail sales data for May. The overall figure is expected to contract by 0.7% mom, the core figure (excluding auto sales) is expected to rise by 0.2% mom, and sales of goods in the control group, which is used to calculate GDP, are expected to increase by 0.3% mom. Despite a slight slowdown in sales growth compared to the average of the last two years, the coincidence of actual results with forecasts will indicate the continued resilience of consumer demand. Other important publications for investors this Tuesday will be the Industrial Production Index for May (consensus: 0% m/m) and Export and Import Price Statistics (consensus: -0.35% and -0.2%, respectively). These data will give a better picture of inflationary trends and manufacturing activity in the US.

Futures on S&P 500 demonstrate negative dynamics. News concerning the Iran-Israel conflict, as well as negotiations with US trade partners, are able to increase the amplitude of stock fluctuations. Taking into account these factors, we forecast a high level of volatility at the upcoming session with a negative balance of risks. We focus on S&P 500 movements in the range of 5930-6090 points (from -1.7% to +1% relative to the closing level of the previous session).

- Shares of Sunrun (RUN), SolarEdge Technologies (SEDG) and First Solar (FSLR) and other solar manufacturers were under pressure in the postmarket following the release of a draft Senate budget that proposes to phase out tax credits for solar and wind power by 2028.

- Eli Lilly (LLY) is in talks to buy biotech startup Verve Therapeutics for about $1.3 billion to expand its portfolio of experimental drugs.

- OpenAI is preparing charges against its major partner Microsoft (MSFT) for unfair competition.

June 16 trading on U.S. stock exchanges ended in the green zone. The S&P 500 rose 0.94%, the Nasdaq 100 rose 1.42%, the Dow Jones climbed 0.75%, and the Russell 2000 added 1.12%. All of the Magnificent Seven stocks ended the day in the plus column, as did most of the sectors that make up the broad market index. Communications companies (XLC: +1.72%) were the top gainers, while utility providers (XLU: -0.49%) were the outsiders.

The Empire State Index of New York's business activity fell to -16 in June from -9.2 in May, while it had been forecast to rise to -6. This indicates a further deterioration in conditions in the state's manufacturing sector. A decline in new orders and shipments was accompanied by worsening availability of supplies and higher selling prices. At the same time, for the first time in several months, a slight increase in employment was recorded, and the assessment of future conditions improved: the expectations index came out of negative territory for the first time since March.

As the deadline to suspend massive import tariffs approaches, the Trump administration is holding meetings with key partners as part of the G7 summit. On the eve it became known about the conclusion of a trade agreement with the UK, announced on June 12.

- Roku (ROKU: +10.4%) announced a partnership with Amazon (AMZN: +1.89%) to create the largest authenticated CTV audience (viewers with Internet-connected TVs) in the United States.

- Sage Therapeutics (SAGE: +35.4%) will be acquired by Supernus Pharmaceuticals (SUPN: +1.37%) for a price of approximately $795 million ($12 per share).

- Activist investor Barington Capital, which owns about 13% in Victoria's Secret (VSCO: +2.4%), intends to revoke takeover protections and reshuffle the management team because it believes current CEO Hillary Super is not experienced enough and the board is ineffective.

- Shares of MGM Resorts (MGM: +8.1%) reacted with solid gains on BetMGM raising its 2025 revenue guidance from $2.4-2.5 billion minimum to $2.6 billion and revising the lower end of the EBITDA guidance upward to $100 million.