By Martin Baccardax

U.S. consumers executed a sharp U-turn on spending last month, according to the Commerce Department's latest retail sales report, with the biggest year-over-year drop of the year. The component of the report that feeds into government Gross Domestic Product $(GDP)$ calculations, however, nudged higher.

The mixed signals taken from the pulse of consumer spending, the veritable heartbeat of U.S. economic growth, match the inconsistency investors have been grappling with since markets turned lower in late February.

Will the Federal Reserve focus on the slowing inflation data and cut rates, or determine that recent readings have likely underplayed the impact of pending tariff price hikes?

Will the Iran-Israel conflict spill over into a broader regional war, spiking oil prices and stoking inflation pressures? Or will both sides avoid targeting energy installations and shipping lanes and neutralize market risks?

Will President Donald Trump follow through on his threat to reinstate sweeping tariffs on U.S. trading partners next month, or opt for a deadline extension that drags tariff uncertainty into the autumn?

"The continuing trade war, opposing economic data, and expectations for Fed policy decisions are creating a challenging environment and competing dynamics are making it very difficult to forecast expectations for the markets," said Chris Brigati, chief investment officer at San Antonio-based investment group SWBC.

U.S. stocks have powered up more than 20% higher from their early April lows but are only up 0.7% over the past month. An even more muted performance is forecast for the second half of the year.

The average year-end price target for the S&P 500 sits at around 6032 points, based on recent calls by 17 banks and investment groups assembled by Mike Zaccardi, a freelance financial writer. That is just 0.4% north of current levels.

Wei Li, global chief investment strategist at the BlackRock Investment Institute, said in a note this week that the wild swings from recent data releases are "reinforcing our view that we are in a regime of greater macro volatility.

"Together with renewed conflict in the Middle East, that signals more volatility ahead," she added. "We think the Federal Reserve will sit tight this week as it waits for clarity. And ongoing inflation pressures from a tight labor market will limit how much it can cut rates."

President Donald Trump's on-again, off-again tariff policies offer yet more uncertainties.

Bank of America's Global Fund Manager Survey, published Tuesday, indicated that investors still consider a trade war, leading to a U.S. recession, as the market's biggest "tail risk" heading into the second half of the year.

That is also stretching the year-end price S&P 500 target range for Mark Luschini, chief investment strategist at Janney Capital Management.

Under the three broad scenarios he has in place for U.S. stocks over the next six months, Luschini says the S&P 500 could rise to 6600 points on the bullish side or slump to 5400 points on the bearish side.

But he cautions that "actions taken on trade policy by the Trump administration over the next few months will have an outsize role in determining the variance between each one."

Jeff Buchbinder, chief equity strategist at LPL Financial, suggests that trade and economic policies will play a larger role in the market's second half performance than events in the Arab Gulf.

Buchbinder has compiled data showing that the typical downside hit to the S&P 500 from a major geopolitical shock is around 5%, and lasts for around three weeks.

Over a six-month time frame after such a shock, however, the benchmark has generated an average return of around 5.5%, a level that largely matches historical norms.

"The key takeaway is that in most cases the economic environment matters more than geopolitics," Buchbinder added.

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 17, 2025 15:46 ET (19:46 GMT)

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