Markets began last week on a relatively optimistic note. The S&P 500 finally closed above the key 6,000 level for the first time in months, driven by improving sentiment around U.S.âChina trade talks. The dialogue focused on critical tech exports like semiconductors and rare earths, giving the chip sector and broader tech names a lift. Although no major breakthroughs emerged, the mere fact that both sides were talking again helped settle nerves, setting a constructive tone early in the week.
Midweek attention turned squarely to the May inflation data, and it delivered. CPI came in cooler than expected, fueling a rally in both equities and bonds. Yields dropped, growth stocks surged, and the S&P and Nasdaq pushed higher. Oracleâs strong earnings and positive AI commentary added fuel to the rally, and Appleâs WWDC event gave investors more reason to believe the tech giant is leaning into AI in a meaningful way. Market breadth improved too â gains werenât limited to just the mega-caps, signaling a healthier rally.
Then came Friday, and with it, a geopolitical shock. Israel launched strikes on Iranian nuclear facilities, and Iran retaliated with drone attacks. Risk assets sold off hard. The Dow tumbled 770 points, oil surged more than 7%, and volatility spiked. Safe-haven assets like gold and Treasuries rallied sharply, while airline stocks and other risk-sensitive sectors fell hard. The market had been building on strong macro momentum, but global tensions forced a sharp risk-off shift heading into the weekend.
All eyes on the Fed â and for good reason
The Fedâs midweek meeting (June 17â18) is going to be the main event. Theyâre not expected to cut rates just yet, but the tone of Powellâs press conferenceâand more importantly, the updated “dot plot” showing future rate expectationsâwill move markets. With inflation coming in softer in May, Wall Street is hoping the Fed gives some indication that rate cuts are on the table later this year. Two cuts are being priced in. But Powell isnât likely to jump the gun, especially with the geopolitical mess overseas. Expect a lot of parsing between the lines. The press conference on Wednesday will probably matter more than the rate decision itself.
Economic data could change the mood
While the Fed holds center stage, weâve also got a packed data calendar that could shift sentiment in a hurry. It starts Monday with the Empire State Manufacturing Survey, and then ramps up Tuesday with May retail sales, industrial production, and inventories. These are the kinds of numbers that will show whether consumers are still spending and how strong the real economy really is. Housing data hits Wednesday morning, and by Friday weâll be looking at the Philly Fed Index and the Conference Boardâs leading indicators. If retail sales and industrial output surprise to the upside, the bullish narrative could get strongerâthink soft landing, solid growth, and lower inflation. But weak numbers? That could spook markets and muddy the Fedâs messaging.
Geopolitics still the wild card
Letâs not forget what rocked markets late last weekâIsraelâs strikes on Iran, followed by retaliation. Oil jumped, stocks dropped, and investors ran for cover. That tension hasnât gone away, and any headlines out of the Middle East could create more volatility. Plus, thereâs the G7 summit going on in Canada. If leaders make moves on tariffsâespecially U.S.âChina or U.S.âEUâit could rattle things. The global chessboard matters here. A spike in oil could undo all the good vibes from a dovish Fed or upbeat economic data.
What to watch and why it matters
Hereâs what Iâll be watching closelyâand what you should be too. First, the Fedâs dot plot and Powellâs tone. Do they hint at cuts, or play it cautious? Second, retail sales. Is the U.S. consumer still alive and well, or tapping out? Third, oil prices. Higher crude could bring inflation concerns roaring back. Finally, Middle East developments. More conflict could derail this rally in a flash. This week feels like a tipping point. Weâve got the ingredients for a rallyâcooling inflation, a Fed potentially pivoting, and a market that wants to believe in a soft landing. But the risks are real. Geopolitics are tense, oil is unpredictable, and the Fed still hasnât shown its cards. Stay flexible. Watch the Fed like a hawk. And donât be surprised if good news and bad headlines end up battling for control of the tape.