The initial public offering (IPO) of SpaceX was the largest IPO on record and traded up after its initial pricing per share. Broadly speaking, investors are navigating a market shaped by various forces. Geopolitical tensions, persistent inflation, and uneven consumer resilience are complicating the economic outlook. At the same time, artificial intelligence capex spending continues to support growth, though uncertain returns on investment and continued equity/debt issuances raise questions about the sustainability of AI gains. We anticipate less fiscal and monetary policy for the remainder of 2026.
Major U.S. stock indexes ended the volatile week higher as cautious optimism around a possible U.S.-Iran agreement, declining oil prices, and continued broadening beyond large-cap technology shares helped offset mixed inflation data and volatility in artificial intelligence (AI)-related stocks. Small-cap equities led the advance, with the Russell 2000 Index rising 3.9%, while the S&P 500 Index and Nasdaq Composite appreciated over 0.65%. The Russell 1000 Value Index outpaced the Russell growth for the second week in a row.
U.S. Treasuries generated positive returns, with yields declining across most maturities, particularly on Thursday as reports that the U.S. had canceled planned strikes on Iran
Key Takeaways
1. The S&P 500 and Nasdaq opened June at fresh record highs but have each given back roughly a few %’s over the past few weeks. Despite the headline selloff, the pullback has been narrower and shallower than it appears. Technology and semiconductor stocks have led both the recent rally and this month’s pullback, and there have been signs of rotations to small caps and the equal weight S&P 500, with market breadth holding steady. Implication – Pullbacks after record highs are normal and don’t mean anything is broken, but they’re a reminder that gains concentrated in a few sectors can cut both ways.
2. Inflation climbed to a three-year high last month. Consumer prices rose +4.2% year-over-year in May, the fastest annual pace since 2023 and up from April’s +3.8%. Energy accounted for more than 60% of the monthly increase, with gasoline up about 7% during the month and ~40% over the past year. The story underneath the headline was calmer. Core inflation, which removes food and energy, slowed to +2.9% and rose just +0.2% month-over-month, slightly below forecast. Shelter inflation, a large and sticky piece of the basket, also continues to ease. The gap between a hot headline and a steadier core suggests the spike is concentrated in fuel for now. Implication – Inflation sits above the Fed’s target as energy prices remain elevated. The market and the Fed continue to watch for signs the pressure is spreading beyond energy.
3. Employers added +172,000 jobs in May, more than double expectations, and the unemployment rate held at 4.3%. Hiring for the prior two months was revised higher by a combined +93,000, but there are signs of labor market slack. The job gains were concentrated in a handful of industries, the ranks of the long-term unemployed remain elevated compared to a year ago, and wage growth cooled to +3.4% year-over-year. Implication – The labor market continues to improve after slowing in late 2025, but some softness is starting to show in the data. The Fed will need to balance the labor market against inflation that’s still elevated.
4. Oil and the Iran conflict continue to impact the energy market. Renewed military strikes last week and ongoing shipping disruptions in the Strait of Hormuz, a critical waterway for global oil, are keeping prices high even though oil sits well below its spring peak. The latest strikes spared energy infrastructure, which kept prices from climbing further, but oil remains near $90 per barrel and well above where it traded a year ago. Implication – The conflict is the thread running through last week’s inflation headlines: oil is the main force pushing inflation up, and the variable that could pull it back down. Oil is not moving with elevated headlines where investors believe some type of “deal” is likely.
5. The Fed meets next week, its first meeting chaired by Kevin Warsh. The market expects the Fed to hold rates steady at both the June and July meetings. This week’s inflation data and the continued Middle East conflict, however, are reshaping the outlook for later this year. The conversation has shifted from when the Fed might cut rates to when it might raise them, with the market now leaning toward a rate increase in the fourth quarter. The longer the Strait of Hormuz remains disrupted, the more likely that becomes. Implication – Interest rate expectations affect mortgages, savings yields, and bond and stock valuations, so the Fed’s tone and outlook could set the market’s direction in the coming months. However, the Fed’s influence is largely limited to the front end of the curve, communication changes and potentially balance sheet adjustments.
Insights
Markets Target Escape Velocity: SpaceX IPO, Middle Eastern Deal, Fundamentals
Stuart Katz
Executive Summary
The initial public offering (IPO) of SpaceX was the largest IPO on record and traded up after its initial pricing per share. Broadly speaking, investors are navigating a market shaped by various forces. Geopolitical tensions, persistent inflation, and uneven consumer resilience are complicating the economic outlook. At the same time, artificial intelligence capex spending continues to support growth, though uncertain returns on investment and continued equity/debt issuances raise questions about the sustainability of AI gains. We anticipate less fiscal and monetary policy for the remainder of 2026.
Major U.S. stock indexes ended the volatile week higher as cautious optimism around a possible U.S.-Iran agreement, declining oil prices, and continued broadening beyond large-cap technology shares helped offset mixed inflation data and volatility in artificial intelligence (AI)-related stocks. Small-cap equities led the advance, with the Russell 2000 Index rising 3.9%, while the S&P 500 Index and Nasdaq Composite appreciated over 0.65%. The Russell 1000 Value Index outpaced the Russell growth for the second week in a row.
U.S. Treasuries generated positive returns, with yields declining across most maturities, particularly on Thursday as reports that the U.S. had canceled planned strikes on Iran
Key Takeaways
1. The S&P 500 and Nasdaq opened June at fresh record highs but have each given back roughly a few %’s over the past few weeks. Despite the headline selloff, the pullback has been narrower and shallower than it appears. Technology and semiconductor stocks have led both the recent rally and this month’s pullback, and there have been signs of rotations to small caps and the equal weight S&P 500, with market breadth holding steady. Implication – Pullbacks after record highs are normal and don’t mean anything is broken, but they’re a reminder that gains concentrated in a few sectors can cut both ways.
2. Inflation climbed to a three-year high last month. Consumer prices rose +4.2% year-over-year in May, the fastest annual pace since 2023 and up from April’s +3.8%. Energy accounted for more than 60% of the monthly increase, with gasoline up about 7% during the month and ~40% over the past year. The story underneath the headline was calmer. Core inflation, which removes food and energy, slowed to +2.9% and rose just +0.2% month-over-month, slightly below forecast. Shelter inflation, a large and sticky piece of the basket, also continues to ease. The gap between a hot headline and a steadier core suggests the spike is concentrated in fuel for now. Implication – Inflation sits above the Fed’s target as energy prices remain elevated. The market and the Fed continue to watch for signs the pressure is spreading beyond energy.
3. Employers added +172,000 jobs in May, more than double expectations, and the unemployment rate held at 4.3%. Hiring for the prior two months was revised higher by a combined +93,000, but there are signs of labor market slack. The job gains were concentrated in a handful of industries, the ranks of the long-term unemployed remain elevated compared to a year ago, and wage growth cooled to +3.4% year-over-year. Implication – The labor market continues to improve after slowing in late 2025, but some softness is starting to show in the data. The Fed will need to balance the labor market against inflation that’s still elevated.
4. Oil and the Iran conflict continue to impact the energy market. Renewed military strikes last week and ongoing shipping disruptions in the Strait of Hormuz, a critical waterway for global oil, are keeping prices high even though oil sits well below its spring peak. The latest strikes spared energy infrastructure, which kept prices from climbing further, but oil remains near $90 per barrel and well above where it traded a year ago. Implication – The conflict is the thread running through last week’s inflation headlines: oil is the main force pushing inflation up, and the variable that could pull it back down. Oil is not moving with elevated headlines where investors believe some type of “deal” is likely.
5. The Fed meets next week, its first meeting chaired by Kevin Warsh. The market expects the Fed to hold rates steady at both the June and July meetings. This week’s inflation data and the continued Middle East conflict, however, are reshaping the outlook for later this year. The conversation has shifted from when the Fed might cut rates to when it might raise them, with the market now leaning toward a rate increase in the fourth quarter. The longer the Strait of Hormuz remains disrupted, the more likely that becomes. Implication – Interest rate expectations affect mortgages, savings yields, and bond and stock valuations, so the Fed’s tone and outlook could set the market’s direction in the coming months. However, the Fed’s influence is largely limited to the front end of the curve, communication changes and potentially balance sheet adjustments.
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