June Economic Update

Market Summary

While the Iran war stagnated last month, the markets took the opportunity to ignore interest rate risk, oil prices, an increasingly hawkish Federal Reserve, and rising inflation to instead focus on the AI narrative once again with the tech and semiconductor sectors outperforming the rest of the market. Bonds continued their selloff almost across the board, dragging total returns for traditional portfolio allocations on fears that rising interest rates due to inflation accelerating which may force the Fed to raise interest rates. For the month, the S&P 500 gained 4.87%, the Nasdaq 100 outperformed with 9.49%, and the Russell 2000 rose 3.81%. (1)

Oil, Iran, Inflation, Interest Rates, and the Fed

All four of these topics are heavily interwoven with one another which will likely be the primary driving forces leading into the summer as the market will eventually have to grapple with all four, assuming the peace talks with Iran continue to drag on and the Strait of Hormuz remains closed.

As we all know, oil prices have virtually doubled over the past few months. This, in turn, has caused Treasury bonds and most bonds across the board to fall, significantly increasing interest rates. This is due to the bond market pricing in future higher inflation which then demands a higher rate of return for owning bonds.

On the inflation front, this appears to be playing out with last month’s year-over-year (YoY) Producer Price Index (PPI) and jumping to levels not seen since February 2023 and the headline YoY Consumer Price Index (CPI) jumping to 3.8%, the highest since June 2023. (2,3)

Federal Reserve officials delivered a noticeably more hawkish message throughout May. Several policymakers expressed concern that inflation had stopped improving and warned that elevated energy prices resulting from Middle East tensions could create additional inflationary pressure.

Notably, some Fed officials openly discussed the possibility that rates may need to remain higher for longer and even acknowledged scenarios where future rate hikes could become necessary if inflation continues accelerating. These comments represented a significant shift from earlier expectations that multiple rate cuts could occur during 2026. (4)

Looking Forward…

The beginning of June has seen a modest pullback in equities to begin the month as the stock market grapples with another interest rate sensitive headline. The Non-Farm Payroll report cited a higher-than-expected reading of 172k jobs added last month. This is actually not a large deviation from what we’ve seen over the past six months, but the market was expecting a weaker number of around 85k, which had that occurred, would have potentially eased the Fed’s thinking about raising rates. (5)

Another potential headwind is the consumer as their wallets become stretched with higher oil prices and interest rates. Last month, the University of Michigan’s Consumer Sentiment survey printed the lowest reading on record since the survey began in 1970 - lower than during any recession in history. While this has not yet been reflected in actual consumer spending data, it is something that will have to be monitored closely. (6)

Stock market valuations continue to be at nosebleed levels for many sectors, with AI-related stocks approaching the “Dot Com” level hype and speculation not seen since the early 2000s. That narrative could be starting to lose steam and is likely overdue for a correction.

---

Monthly Financial Tip:

Take a few minutes to review your credit report at least once a year. Errors on credit reports are more common than many people realize and can affect your ability to qualify for loans, insurance rates, and even employment opportunities in some cases.

---

Citations:

1. Schwab, May 29, 2026

2. Investing.com, May 13, 2026

3. Investing.com, May 12, 2026

4. Reuters, May 06, 29, 12, & 13, 2026

5. Investing.com, June 05, 2026

6. Investing.com, May 22, 2026

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.