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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 holiday-shortened but enormously consequential week, dominated by two opposing forces: a historic peace deal between the U.S. and Iran, and a surprisingly hawkish Federal Reserve. The tug-of-war between those two stories made for a rocky ride, though stocks managed to end on a strong note. Markets were closed Friday for the Juneteenth holiday, which compressed all the action into four trading days.
The week opened with a genuine breakthrough. The U.S. and Iran reached a framework deal to end the war and reopen the Strait of Hormuz, with Trump authorizing the toll-free opening of the strait and the immediate removal of the U.S. naval blockade. This is the news markets have been waiting on for months. The Strait of Hormuz, which carries roughly a fifth of the world's oil, has been effectively shut since the war began in late February, and its closure was the single biggest driver of the energy shock and the inflation that came with it. The market reaction was immediate. Crude oil fell more than 4.5% to around $80 per barrel, its lowest level since the first week of March, as the news broke. Stocks surged to start the week, with the Dow notching a record high on Tuesday.
Then the Fed changed the mood entirely. At Kevin Warsh's first meeting as chair on Wednesday, the Fed held rates steady at 3.5% to 3.75%, but officials removed their prior outlook for a rate cut this year and indicated that a hike is now possible. The median year-end rate projection jumped to 3.8% from 3.4% in March, effectively flipping the central bank's stance from signaling a cut to signaling a hike, with any reductions now pushed out to 2027 or later. 17 of 18 officials judged the risks to inflation to be tilted to the upside. This was a clear hawkish surprise, and stocks sold off sharply on Wednesday as investors digested the reality that rate relief is not coming anytime soon. In a break with tradition, Warsh declined to submit his own rate projection at his debut press conference, while emphasizing the Fed's commitment to price stability.
The week's final act belonged to the peace deal again. Stocks rebounded Thursday to close out the week, with the S&P 500 jumping 1.2% and reversing much of Wednesday's slide, after Trump signed an interim peace deal with Iran that paves the way for reopening the Strait of Hormuz. The market essentially decided that a durable end to the energy shock matters more than a hawkish Fed, at least for now. The logic is sound: if oil keeps falling, the inflation pressure that pushed the Fed hawkish in the first place should start to fade, which could eventually take those threatened rate hikes off the table.
The bottom line on the week: the most important geopolitical and economic overhang of 2026 may finally be lifting. The peace deal and falling oil are genuinely bullish for inflation and for stocks. But the Fed made clear it is not going to declare victory until it actually sees inflation come down, and it is now leaning toward hikes rather than cuts. Those two threads will define the weeks ahead.
What's Coming Next Week
The single biggest event is Thursday's inflation report. The May PCE data, the Fed's preferred measure of inflation, releases this Thursday, June 25. Given the Fed's hawkish pivot this week, this number carries extra weight. The rates market is now pricing in a full quarter-point Fed hike by October, so any sign that inflation is cooling could ease those hike fears, while another hot reading would reinforce them. The recently signed peace deal has already pushed oil back down to levels not seen since the war started, but that relief will take time to filter into the inflation data, so this particular report may still run elevated.
The follow-through on the Iran deal is the other dominant variable. The framework agreement was set to be formally signed at the end of this week, and the key question now is whether the Strait of Hormuz genuinely reopens and oil continues to fall. If it does, that is the most powerful disinflationary force available to the market and could gradually undercut the case for Fed hikes. Any snag in implementation would send oil and volatility back up quickly.
Also worth watching are the flash business activity surveys due Tuesday, which will give an early read on whether the economy is holding up after the Fed's hawkish shift. A resilient economy supports the market but gives the Fed more room to stay tight, while any softening could ease rate hike fears.
The bottom line heading into next week: the war premium that has weighed on markets all year is finally coming out of oil, but the Fed is now the main obstacle, leaning toward hikes until inflation clearly turns lower. Thursday's inflation reading and the reopening of the Strait of Hormuz are the two things to watch.
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