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Good Morning!
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Now let’s break down what actually moved markets this past week and what to watch next.
Market Recap
This was a dramatic week that saw the biggest geopolitical setback in months collide with a remarkably resilient stock market. The headline event was the collapse of the U.S.-Iran ceasefire, which sent oil spiking and briefly rattled markets midweek. Yet by Friday, stocks had not only recovered but finished higher, with the S&P 500 climbing more than 1.5% on the week. It was a striking display of how much conviction is currently underpinning this market.
The dominant story was the breakdown in the Middle East. After weeks of de-escalation and falling oil prices, the situation reversed sharply on Wednesday when President Trump declared at the NATO summit that the ceasefire with Iran was over. The U.S. had launched a series of fresh strikes against Iran in retaliation for attacks on three commercial vessels transiting the Strait of Hormuz, and Trump threatened further military action. Energy prices surged on the news, with international benchmark Brent crude jumping more than 6% in a single session to around $79 per barrel. This matters enormously because falling oil had been the single most important force pulling inflation lower over the past several weeks. That tailwind is now under threat, and if oil climbs back toward its wartime highs, the improving inflation picture could quickly deteriorate.
Here is what was impressive, though. Rather than spiraling into a broader selloff, the market steadied itself and rebounded. After the risk-off session midweek, stocks rallied Thursday and Friday as investors bet that the renewed hostilities would not escalate into a full-scale war. The recovery was led by a sharp bounce in semiconductors and select large-cap technology names, one of which posted its best week in over two years. Oil also eased back from its midweek spike as the initial panic faded. The net result was a market that absorbed a genuine geopolitical shock and still finished the week in the green, which tells you a lot about the underlying demand for stocks right now.
The other notable development was the release of the Federal Reserve's June meeting minutes on Wednesday, though they were largely overshadowed by the Iran news. The minutes revealed a deeply divided committee, which Chair Kevin Warsh himself described as a family fight over the direction of rates. A few officials saw a case for raising rates immediately, and the broader tone reflected growing concern about inflation even as worries about the labor market eased slightly. Markets are now pricing in a possible rate hike as early as September. The takeaway is that the Fed is leaning hawkish and is clearly more worried about prices than about a slowing job market, which makes the incoming inflation data all the more important.
Beneath the surface, the rotation theme we have been tracking continued to play out, with money moving through different sectors rather than piling into a handful of mega-cap names. Health care, financials, and consumer-oriented sectors all saw strong interest during the week. That kind of broadening participation is generally a healthy backdrop for the smaller and mid-sized companies that tend to get overlooked when the market is narrowly led.
The bottom line on the week: the Iran ceasefire collapse is a real setback that puts the disinflation story at risk, but the market proved resilient and pushed higher anyway. The tension between a hawkish Fed, a fragile geopolitical situation, and strong underlying demand for stocks is the dynamic to watch heading into a very busy stretch.
What's Coming Next Week
Next week is loaded with catalysts, and the single most important one is Tuesday's June inflation report. This is the last major reading on consumer prices before the Fed's July 28-29 meeting. Headline inflation ran at 4.2% in May, and economists expect June to ease somewhat as earlier energy pressures moderated. One important nuance for our readers: this June data will not yet capture the renewed oil spike from this week's ceasefire collapse, so even a soft reading may represent a last clean look before the war premium potentially creeps back in. A cooler number would support the market and the case for the Fed staying patient, while a hot print would revive rate hike fears.
Tuesday also marks the unofficial start of second-quarter earnings season, with the big banks kicking things off before the market opens. Bank results are always an important early read on the health of the economy, so investors will be watching closely for what they signal about consumer credit quality, loan demand, and lending margins in this higher-for-longer rate environment. More major financial, technology, and consumer companies report through the rest of the week. Overall, analysts are expecting very strong second-quarter profit growth of over 20% for the broad market, one of the fastest rates in years, so these reports will test whether those lofty expectations are justified.
For technology specifically, the key theme remains whether the enormous spending on AI infrastructure is translating into real revenue growth. Several major chip and tech names report later in the week, and their guidance will heavily influence sentiment around the AI trade that has driven so much of this year's rally.
Fed Chair Warsh also makes his first appearance before Congress next week, which could generate headlines if he offers any fresh signals on the policy path. And underneath all of it, the Iran situation remains the biggest wildcard. Whether this week's renewed hostilities escalate or cool back down will drive oil prices and, by extension, the entire inflation outlook. That is the story to watch above all others.
The bottom line heading into next week: inflation data and bank earnings will set the tone, the Fed is leaning hawkish, and the Iran conflict has reintroduced real uncertainty into the energy and inflation picture. For small-cap investors, a soft inflation reading combined with solid earnings could support the broadening we have been seeing, while an oil-driven inflation scare would be the main risk.
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SmallCapStocks Team
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