Investors closely monitored the potential impact of President Trump’s tariffs on the U.S. economy while markets reacted to escalating tensions between Israel and Iran, causing stock performance to decline slightly last week. As the new week begins, geopolitical developments appear to dominate investor sentiment.
President Trump confirmed on Saturday that the U.S. military had carried out strikes on three locations in Iran. Since the conflict intensified on June 13, these were the United States’ first direct military actions. Trump said in a White House speech that night that if “peace does not come quickly,” more military action may be taken.
U.S. attack on Iran has limited impact on stock performance
As markets react to the ramifications of a growing Middle East conflict, these developments are likely to overshadow forthcoming economic reports and corporate earnings.
The Nasdaq Composite increased by 0.2% over the past week, while the S&P 500 fell by 0.15%. The shortened trading week ended with the Dow Jones Industrial Average just barely in the black.
Economists will release several key economic indicators this week, including the Federal Reserve’s preferred inflation measure, updates on manufacturing and services activity, consumer confidence data, and the final Q1 GDP revision. Investors will be closely monitoring Fed Chair Jerome Powell’s two-day semiannual testimony before Congress on Tuesday for any indications of policy.
Geopolitical tensions and risks have increased, but stock performance generally has not been impacted much. The S&P 500 has remained largely unchanged since Israel’s initial missile strikes on June 13, according to Scott Chronert, U.S. strategist at Citi, who wrote, “The key for equities from here will come from energy commodity pricing.”
Oil prices and the Federal Reserve
Since the conflict began, oil prices have increased by roughly 10%, with West Texas Intermediate (WTI) currently trading at about $75 per barrel. Co-founder of DataTrek Research Nicholas Colas cautioned that a significant increase in oil prices might hinder economic expansion. He discovered that oil prices usually doubled annually prior to previous recessions. Colas said that in order to cause genuine concern, prices would have to spike to $120 per barrel, which would probably necessitate a “long period of military action.”
As anticipated, the Federal Reserve did not alter interest rates at its June meeting. The Federal Reserve sparked new concerns about stagflation after its latest Summary of Economic Projections revealed downgraded growth expectations and higher inflation forecasts. Powell said, “You should see those differences diminish as the data come in,” alluding to differing views within the Fed about potential rate cuts in the future.
Investors currently await the May Personal Consumption Expenditures (PCE) report, scheduled for release on Friday. Economists predict that core PCE — which excludes food and energy — will rise 2.6% year-over-year, slightly up from April’s 2.5%. Meanwhile, the S&P 500 continues to chase its record high of 6,144.15, last reached on February 19.
Exhibit A co-founder Matt Cerminaro noted that following significant declines, markets frequently take months to reach new highs. The index has held within 5% of its record since May 12, indicating that more time may elapse before a breakout happens.
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