Stocks fell and oil rose as the U.S. weighed its involvement in Israel and Iran's war. Plus, the Fed readies next 'dot plot.' ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

By Alex Eule | Tuesday, June 17

The Risks Build. The market's hopes for de-escalation in in the Middle East war faded today, as President Donald Trump called for "Unconditional Surrender" from Iran. Stocks, which had been hovering roughly flat on the day, declined on the news.

Shortly after his post, the president met with aides in the situation room, where a U.S. strike on Iran was among the options under consideration.

Amid the war talk, the major indexes closed near their lows of the day, with the S&P 500 off 0.8%, the Dow Jones Industrial Average slipping 299 points, or 0.7%, and the Nasdaq Composite down 0.9%. The potential for a broadening war showed up more directly in the energy market, with crude oil settling 4.3% higher, at $74.84 a barrel, its highest level since Jan. 22.

Stocks actually showed some resilience given the geopolitical worries combined with more downbeat news about the U.S. economy. U.S. retail sales fell 0.9% in May, according to a U.S. Census Bureau report released today, a larger decline than economists expected. Cars and parts (-3.5%), building materials (-2.7%), and gas stations (-2.0%) saw the biggest declines. Clothing (+0.8%) and sporting goods/hobby stores (+1.3%) were among the gainers.

Anything short of an American war in the Middle East could take a back seat to the Federal Reserve tomorrow, which is set to announce its latest rate policy statement at 2 p.m., following by Fed Chairman Jerome Powell's press conference at 2:30.

This is one of the Fed announcements that also includes the quarterly Summary of Economic Projections, also known as the dot plot. It lays out forecasts from Fed officials for GDP growth, inflation, and unemployment. The estimates are the market's best look at the Fed's current thinking about future policy decisions.

For now, the Fed is very much in a wait-and-see mode, though traders continue to price in two cuts by the end of the year. That creates market risk, according to Chris Senyek, chief investment strategist at Wolfe Research. Fewer cuts could come as a negative surprise to the market.

"While inflation has come down over the past couple months, we see a risk of market complacency from the softer readings and a key negative risk of price acceleration in the back half of 2025," Senyek wrote to clients today. "Along this vein, our sense is there could be a potential risk of the Fed cutting interest rates 0 times this year!"

As usual, everything Powell says tomorrow will be closely scrutinized. We'll be covering the Fed's big day in real-time on Barrons.com and in this newsletter tomorrow night.

DJIA: -0.70% to 42,215.80
S&P 500: -0.84% to 5,982.72
Nasdaq: -0.91% to 19,521.09

The Hot Stock: Jabil +8.9%
The Biggest Loser: Enphase Energy -24.0%

Best Sector: Energy +0.9%
Worst Sector: Consumer Discretionary -1.7%

Dark Day for Solar

Solar stocks were hammered Tuesday after the U.S. Senate released a new draft of the Trump reconciliation bill, or megabill as it's often known.

The new plan, which makes some key changes from a version that already passed the House, would go further in eliminating a key solar energy credit.

The bill would eliminate the $6,000 residential solar panel credit within 180 days of the bill's passage, my colleagues Avi Salzman and Elsa Ohlen report.

Sunrun, a solar developer, fell 40% on the day, while solar equipment makers SolarEdge Technologies and Enphase Energy were down 33% and 24%, respectively.

Avi and Elsa write:

The Senate Finance Committee’s rules for residential solar tax credits appear to be even more restrictive than the bill passed by the House, which itself was considered very restrictive.
KeyBanc analysts led by Sophie Karp downgraded Sunrun, SolarEdge, and Enphase to Underweight from Sector Weight following the release.
The lack of improvement in both residential and investment credits is a “material negative” for the companies that may even challenge their business models, Karp said.

There might be a few rays of light for the industry, though, they note:

That said, the bill may include a loophole that the industry can use to still receive credits, J.P. Morgan noted. Sunrun, which tends to lease panels to consumers, can still receive credits if the company uses a model where it sells the power to consumers through a contract known as a power-purchase agreement. If the loophole makes it into the final bill, it could prove to be a lifeline for stocks that are trading like their business model is doomed.
The Senate bill does look more generous than the House version for other kinds of clean energy, however. That includes nuclear power, biofuels, geothermal energy, and battery storage. In fact, nuclear energy would do even better under this version than the industry would have fared if current law was extended, because nuclear tax credits will be extended for several more years. That’s a benefit to companies like Constellation Energy, which owns nuclear reactors, and Oklo, which is working on building new kinds of reactors.

The Calendar

The Federal Open Market Committee announces its monetary-policy decision tomorrow.

The FOMC is all but certain to leave the federal-funds rate unchanged at 4.25% - 4.50%. The central bank will also release its quarterly Summary of Economic Projections. In the March SEP, the committee penciled in two quarter-point rate cuts through the end of the year. Of greater interest on Wall Street is Federal Reserve Chairman Jerome Powell’s press conference at 2:30 p.m.

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