Geopolitics returned to the spotlight this week as military activity between the U.S. and Iran escalated again. After attacks on three commercial vessels in the Strait of Hormuz on Monday and Tuesday, the U.S. launched a new wave of strikes and revoked Iranian oil waivers. President Trump subsequently declared the ceasefire over, while indicating that he remained open to negotiations. Traffic through the Strait of Hormuz has all but halted, pushing Brent crude futures more than 6% higher for the week. Investors had been hopeful for a resolution to the conflict and a normalization of oil flows, but the latest developments renewed concerns about a prolonged disruption and contributed to the market declines that followed.
While all major indexes declined on Tuesday and Wednesday following the Iran news, markets rallied to end the week, with both the S&P 500 and the Nasdaq up over 1% for the week. Gains were led primarily by the energy, technology and communication services sectors, while materials and health care recorded the largest losses. Despite technology’s strong performance this week, the recent rotation away from the sector and into more value-oriented areas of the market remains a broader theme. Since the start of June, health care, financials and utilities have been the best-performing sectors, while technology has been the worst performer, declining by nearly 5% during that period.
On the economic front, investors remain sensitive to developments in employment and inflation, as incoming data will play a significant role in shaping expectations for interest rates. The labor market continues to show signs of resilience, with initial jobless claims coming in below expectations this week. While last week’s nonfarm payrolls report came in well below expectations, with 57,000 jobs added versus the 110,000 expected, the result was roughly in line with the average monthly change over the past year. The unemployment rate also edged down to 4.2% from 4.3% the previous month. Housing continues to be a key area of weakness for the economy, as elevated interest rates have weighed on affordability and transaction activity. Existing-home sales fell 2.4% in June to an annualized rate of 4.09 million, well below the 2015–2019 average of roughly 5.4 million.
Looking ahead, investors will be focused on several inflation reports, including the consumer price index (CPI) and producer price index (PPI) for June. With inflation remaining a key consideration for monetary policy, these reports could meaningfully influence expectations for the timing and pace of future rate changes. Data on consumer spending and several housing reports will also be released. In addition, second-quarter earnings season kicks off next week, with several large U.S. financial institutions scheduled to report results. Their results can also offer valuable insight into consumer behavior through commentary on spending, loan demand and credit conditions.
