3 Things You Need to Know This Week | NATO Summit, Consumer Confidence, US Dollar (June 23, 2025)

Transcript

Ben Thistlethwaite:

Hello and welcome to 3 Things You Need to Know This Week—our regular series designed to help you sift through the noise across financial media and understand what really matters for markets.

Now, here are the three things you need to know this week.

First up, the annual NATO summit.

On Tuesday and Wednesday, NATO leaders are meeting in the Netherlands for the military alliance's annual summit. For years, many NATO members missed defense spending targets. But in 2024, every member increased their defense budgets, and some member countries are expected to continue raising defense budgets for years ahead. This might have some investors asking, "Is now a good time to invest in defense stocks?" It certainly makes sense to think higher defense spending and a backdrop of conflicts around the world could mean more revenue and profits for aerospace and defense firms. But what makes stocks perform well isn't always straightforward. That's because markets are efficient and they pre-price widely known or expected events very quickly, like expected increases in defense spending or the impact of regional geopolitical conflicts. For instance, when Russia invaded Ukraine in February 2022, aerospace and defense stocks outperformed sharply at first. But after an initial surge, they performed largely in line with the broader market in years like 2023 and 2024, even as that war continued. So, while defense spending and wars do impact profits, they're just one part of the overall picture. For investors, what matters much more is how reality matches up with expectations.

Next up, US consumer confidence.

On Tuesday, the Conference Board reports June US consumer confidence data. And on Friday, we'll get the final June reading for the University of Michigan Consumer Sentiment Index. As you'll remember, consumer confidence took a big hit in the first half of this year due to rising tariff concerns and broader economic fears. More recently, it's shown some signs of improving. What many people don't realize is these consumer surveys aren't really great at predicting what's coming next for the economy. They show how people feel right here, right now. But that doesn't mean we can count on these surveys to tell us how people will feel or act in the future. And consumer confidence tends to move along with trends we're already seeing. Things like stock market performance, broader economic data, and even the tone of financial news coverage. Take this year, for example. Consumer sentiment took a big dip in March and April alongside the stock market correction, tariff uncertainties and much more. But falling consumer sentiment wasn't predictive. By May and June, sentiment rebounded some as tariffs were paused and stocks recovered. Now, despite recovering, sentiment today isn't particularly high, which can actually be a positive for stocks. Weaker sentiment often sets a lower bar for reality to beat. And if things turn out to be just a little bit better than people expect, that's a positive surprise that can help propel stocks higher and keep this bull market moving.

Finally, the US dollar.

Some are still worried that a weakening US dollar may signal some declining confidence in the US economy and government debt. But to us, recent US dollar trends look pretty normal in terms of currency volatility. Yes, the dollar is near lows that were last seen in 2022, but it remains much stronger than it was during the entire 2010s. Historically, the dollar can rise or fall during bull markets. Actually, either direction is pretty normal, but it usually strengthens during a bear market. That's not because a strong dollar causes stocks to fall, but because global markets often shift investments towards perceived safety during times of uncertainty, including things like US government bonds. Many refer to this as a "flight to quality." Some worry this year's dollar dip alongside a market correction means the dollar is no longer a safe haven asset. However, the dollar's decline really isn't as dramatic as it seems. It's mostly reversed some of the big gains that it saw around the 2024 US presidential election. Even now, the dollar is sitting at higher levels than it was during most of the 2009 to 2020 bull market. Now, recall that was the longest bull market in history and a weaker dollar didn't stop stocks from thriving. And we don't think the dollar's current levels, or even a further weakening, would necessarily suggest a major issue either.

And that's it for this episode of 3 Things You Need to Know This Week.

For more of our thoughts on markets, check out This Week in Review, which is released every Friday. You can also visit FisherInvestments.com. Thanks again for tuning in and don't forget to subscribe!