Wall Street ended the week higher as investors weighed the latest inflation data, ongoing developments in Middle East diplomacy, and the strong debut of SpaceX. U.S. inflation accelerated in May, with the consumer price index rising 4.2% from a year earlier, increasing from April’s 3.8% annual rate. Energy costs drove much of the increase as the Iran war continued to pressure fuel markets.
The ceasefire with Iran has been an on again, off again situation. Peace talks appear stalled. Tehran has been demanding $24 billion in frozen asset releases as a condition for any preliminary deal before opening the Strait of Hormuz. Earlier this week, Iran fired missiles at Israel, the first strike since the April ceasefire. Israel hit back prompting Trump to state “Get back on the table and make a deal”. Iran ignored him and took down a US Apache helicopter near Oman which got Trump incensed enough to post on social media – “They will pay the price. There will be a massive strike on Iran on Thursday night”. Of course, Trump delivered TACOs (Trump Always Chickens Out) once again, this time on Thursday morning and recanted his statement of bombing Iran. The ceasefire is now dead and oil prices remain high. And now, Trump claims that an agreement to end the war will be signed soon.
Amdist all the chaos, SpaceX’s long awaited initial public offering debuted on the Nasdaq on Friday, with shares opening at $150 and finishing their first trading day up 19% as strong investor demand fueled gains.
For the week, the Dow climbed up 0.66%. At the same time, the S&P 500 moved up 0.65%, while the Nasdaq added 0.70%.
Future Wealth’s View
A hot CPI and low employment makes the Fed meeting on June 17 interesting with markets expecting a rate hike this year and the new Fed Chair – Kevin Warsh, under pressure from Trump to cut interest rates. If an agreement to end the war does get signed over the weekend, Monday becomes the most important session since the war began. Oil prices below $85 with a signed deal removes the largest input into every inflation print since February. Homebuilders, utilities, and REITs have been frozen by the war since February.
But the markets need to hear that the war is over from someone other than our President, who frequently lies and has lost all credibility amongst allies, enemies and pretty much everyone in the United States.
In the meantime, the saving rate has collapsed in recent months especially among middle and lower income households as credit card delinquencies reach levels not seen before. Unfortunately, wage growth is not keeping up with the rise in inflation. Without the rewards that the stock market is providing to the high income cohort, this economic setup would be signaling a slide into a correction in the stock market. But, the wealthy continue to spend and are supporting an economy that is being unfair to the middle and lower income households.
Such is life.