Geopolitical Tensions and Weak Manufacturing Data: Market Drop and Its Impact

The stock market ended the day near session lows after a late morning rally briefly pushed it toward break-even. President Trump, fresh from his return from the G7 summit in Europe, has continued to amplify rhetoric about a potential U.S. strike on targets in Iran, which would expand the conflict beyond Israel and Iran. As a result, energy was the only sector to finish the trading day in positive territory, with WTI oil prices up 4% to $75.39 per barrel, the highest levels since mid-January, and Brent crude up 3% to $72.50 per barrel. Solar companies continued to struggle today, as the recently passed Big Beautiful Bill removed all assistance to domestic solar power initiatives. The Dow closed down 305 points today, -0.72%, while the S&P 500 found itself back below 6K again, down 52 points or -0.88%. The Nasdaq slipped 0.93%, as all Mag 7 stocks closed lower today, and the small-cap Russell 2000 took up the rear today, -0.99%. Just minutes before the opening bell this morning, we received monthly manufacturing data in the form of Industrial Production and Capacity Utilization for May. The headline on Industrial Production reached -0.3%, below the expected -0.1% and the upwardly revised +0.2% from the previous month. Year over year, this print dwindled to +0.5%, less than half the prior month’s read of +1.3%. Capacity Utilization, monitoring whether manufacturing is operating near its full potential, struck the lowest level since November of last year: 77.3%. This was the fourth-straight monthly drop, from February’s 12-month high 78.1%. April’s unrevised 77.6% was where this month’s consensus estimate was at. Current capacity utilization is -2.3% below the long-run average (from between 1972 and 2024). These are mildly disappointing numbers, demonstrating that our still-murky tariff policy has not yet firmed domestic manufacturing data, at least according to these metrics. However, we consider ourselves still range-bound at current levels; though slightly off expectations, we do not see these data points falling off a cliff. April Business Inventories came in as expected at “unchanged” (0.0%), below the +0.1% from the prior month and also the fourth-straight lower monthly print. It’s also the fourth time in the past 12 months we’ve seen a 0% read on inventories, but keep in mind: these are April figures, with the report coming from within the same general time period as the initial “Liberation Day” tariffs. We’ll get a better picture on these levels when we see the post-tariff months report.