Markets Waver as Inflation Cools and Geopolitical Risks Rise

Market Overview

U.S. equities ended the week little changed, with the S&P 500 flat and the Nasdaq mirroring its performance. Investors were initially optimistic as U.S.-China trade talks extended in London, but the resulting agreement—largely seen as a reiteration of previous commitments—failed to spark momentum. The Dow lagged, weighed down by global uncertainty and muted risk appetite.

Energy stocks led sector performance, rising 5.8% on the back of surging oil prices amid renewed Middle East tensions. Financials, by contrast, declined 2.6%, the worst-performing sector for the week. Health Care (+1.3%) and Utilities (+0.3%) also posted modest gains, while Industrials and Consumer Staples each fell over 1%.

Internationally, European equities broadly declined, with Germany underperforming and the U.K. eking out gains thanks to increased defense spending plans. In Asia, Taiwan and South Korea advanced on positive trade signals and stimulus hopes, while Japan and China finished mixed.

Federal Reserve Insights and Economic Roundup

Cooling inflation was the headline of the week. May’s Consumer Price Index (CPI) rose just 0.1%, marking the fourth straight month of better-than-expected data. Core inflation eased to 2.8%, prompting market optimism around potential rate cuts. Prices for trade-sensitive categories like autos and apparel declined, suggesting tariff impacts have yet to fully filter through.

Producer Price Index (PPI) echoed the CPI trend, also rising 0.1% for the month and coming in below forecasts. The bond market responded swiftly—Treasury yields fell across the curve, with 2- and 10-year yields down 7 basis points.

Demand for new Treasury issuance remained strong, especially for the 30-year auction, easing short-term concerns about U.S. fiscal deficits. The Bloomberg U.S. Aggregate Bond Index advanced on the week.

In commodities, WTI crude oil spiked following Israeli airstrikes, lifting the Bloomberg Commodities Index. Gold rallied as well, supported by geopolitical fears and rising Fed rate cut bets. Meanwhile, the U.S. dollar slipped as trade uncertainty and dovish rate expectations weighed on the greenback.

The Week Ahead

Key Data to Watch:

• Monday: Empire Manufacturing
• Tuesday: Retail Sales, Industrial Production, Import/Export Prices, NAHB Housing Index
• Wednesday: FOMC Rate Decision, Housing Starts, Jobless Claims
• Thursday: Markets closed (Juneteenth)
• Friday: Philadelphia Fed Business Outlook, Leading Economic Indicators

All eyes will be on the FOMC meeting Wednesday, with fresh guidance on the Fed’s rate path likely to drive market sentiment into the second half of the year.