Author: Davis Finke, CFA
After markets started the week on shaky footing, all major equity indexes finished higher following a Thursday and Friday rally driven by news of a potential agreement between the U.S. and Iran. As a result, oil prices fell to their lowest level since March, and all but two sectors ended the week in positive territory. Materials and consumer staples led the way, followed by technology. In addition, the long-anticipated debut of SpaceX took place today, with the company’s market capitalization surpassing $2 trillion. Trading opened at $150 per share and rose as high as $176.52 before closing at $161, placing SpaceX among the 10 most valuable public companies in the U.S. The $75 billion raised by the IPO is the largest on record, and the overall success will set the stage for offerings from OpenAI and Anthropic later this year.
On the economic front, this week brought the release of several inflation measures. Headline inflation for May came in line with expectations, rising 0.50% month over month and 4.20% year over year. While this marked the strongest annual increase since April 2023, the primary driver was higher energy prices tied to the conflict with Iran. Beneath the surface, however, the inflation trend appeared more encouraging. Core inflation, which excludes food and energy, rose 0.2% in May and 2.90% year over year, which, while still elevated, is more consistent with the Fed’s 2% target. The gap between headline and core inflation highlights the impact of rising oil prices, which are up more than 40% year to date. Although consumers are still feeling that increase, it offers some clarity for investors, as the Fed is unlikely to raise interest rates solely in response to energy-driven inflation.
Looking ahead to next week, the main focus for investors will be the Fed’s interest rate decision and updated economic projections. This will be Kevin Warsh’s first Fed meeting as chair, and while the central bank is widely expected to leave rates unchanged, investors will be looking for any signals about the future path of monetary policy, including how willing the central bank may be to act if economic conditions begin to soften. Another major focus will be whether the U.S. and Iran move closer to signing a memorandum of understanding after President Trump said on Thursday that an agreement could come within days. If signed, such a deal could lead to the reopening of the Strait of Hormuz, relief from some sanctions on Iran’s oil exports, and the lifting of U.S. blockades on Iranian ports. While the agreement would not fully resolve concerns around Iran’s nuclear program, it would likely be viewed as a meaningful step toward de-escalation.
