Five for Friday - June 20, 2025

Global Outperformance, Oil, Recession Timing, Housing, and Blockbusters

1. International

The US stock market has recovered from its April selloff but remains below its February all-time high. Global markets, on the other hand, blasted through their early 2025 highs and went on to make new highs. The MSCI All Country World ex-US index is up +16% through June 17 (vs. +2% for the S&P 500), with both emerging and developed markets rising. Importantly, this trend has persisted even as the most worrying tariff rhetoric has been walked back, with the US dollar hitting fresh multi-year lows just this week. With American investors likely overconcentrated in US stocks (thanks to a decade-plus of outperformance and a natural home country favoritism), shoring up one’s international diversification seems prudent, even with U.S. Tech still a global leader and the U.S. dollar far from dead. 

2. Oil

The price of oil is one of the main ways crises abroad impact U.S. investors and consumers. The Strait of Hormuz, which connects the Persian Gulf and the Arabian Sea, is one of the world's critical oil chokepoints, and the price of crude is already up ~20% in June (though still well below 2022 levels). Continued escalation between Iran and Israel could keep upward pressure on prices near-term, but the US has a stronger strategic position on energy production and consumption than it did in the 1970s when oil embargos fueled record U.S. inflation. The EIA notes that in 2024, 84% of the crude oil that moved through the Strait of Hormuz went to Asian markets, while U.S. imports via the strait accounted for just 2% of total U.S. petroleum liquids consumption. According to the EIA, this was the lowest level of U.S. crude oil imports from Persian Gulf countries in nearly 40 years, thanks to domestic production and imports from Canada. Energy independence is a complex idea when global markets set prices, but our new-ish role as a net exporter is still an enviable one.  

3. Recession

We spend so much time debating whether a recession is looming that we often miss a fundamental truth: even if we could know that one is coming, it would be next-to-impossible to make money with that knowledge. The U.S. economy shrunk in just 9 of the last 75 years. For those contraction years, the S&P 500 saw a median return of +30% and was up +18% or more in eight of the nine instances. Using the economy to try to time the stock market is fraught with risk.

4. Did you know

that over 50% of single-family homes in the U.S. were built before 1979? Housing starts plummeted after the 2008 Financial Crisis and never quite recovered, leaving the U.S. massively short on housing for the now family-age Millennials (especially with more Baby Boomers deciding to age in place). An older housing stock + elevated home equity levels + aging-in-place trends = a potential boom in home project spending. With interest rates elevated and homebuilder sentiment in the tank, there doesn’t seem to be a deep pipeline of new housing supply—making repairs, remodels, and projects an interesting possibility for an investment theme.

5. On this day

50 years ago, Steven Spielberg’s Jaws opened in North America, became one of the highest grossing films ever and functionally created the concept of the summer blockbuster (its unique marketing press and summer release were both novel ideas). Two summers ago, the “Barbenheimer” phenomenon—the incredible success of which owes a debt to strategies pioneered by Jaws—likely played a (shockingly large) role in helping the US avoid a post-inflation recession in 2023 and came to exemplify post-pandemic “revenge spending.”  

Disclosures

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

This report does not provide recipients with information or advice that is sufficient on which to base an investment decision.  This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should not consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.

For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor and/or your tax or legal advisor.

Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index.

Copyright 2025 Robert W. Baird & Co. Incorporated.

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