Stocks gain, despite raised Middle Eastern tensions

Macroeconomic/ geopolitical developments

• US equity markets ended a volatile week mostly higher, with the Nasdaq gaining 1.74% and the S&P 500 rising 1.23%, while the Dow Jones Industrial Average fell 0.50% and the Russell 2000 declined 0.61% as investors favoured large technology stocks. A late rebound in semiconductor and artificial intelligence shares, alongside strength in the energy sector, helped support broader market sentiment despite renewed Middle East tensions and rising Treasury yields.

• US-Iran ceasefire breakdown and renewed military strikes lifted geopolitical tensions, pushing oil prices around 5% higher midweek before gains eased as hopes of renewed negotiations improved sentiment. Investors continue to monitor the conflict’s potential impact on energy supplies, inflation and the outlook for central bank policy.
• AI and semiconductor stocks rebounded strongly as renewed confidence in long term artificial intelligence investment outweighed earlier concerns over spending and valuations. The recovery lifted the technology sector, with investors encouraged by continued strong AI demand and optimism ahead of the upcoming earnings season.

• The Federal Reserve’s June Meeting Minutes reinforced a hawkish outlook, showing policymakers remain focused on persistent inflation and leaving the door open to further interest rate increases if price pressures fail to ease. The Minutes also highlighted Kevin Warsh’s preference for less forward guidance and a more data dependent approach, reinforcing expectations that interest rates are likely to remain higher for longer.
• US CPI inflation will be the main focus this week, with investors looking for further clues on the Federal Reserve’s interest rate outlook as the second quarter US earnings season gets underway, results from major US banks, alongside ASML, Taiwan Semiconductor and Netflix, will provide important insight into the health of the economy and continued demand for artificial intelligence related technologies.

Global financial market developments

• US and global equity averages were mostly higher.
• US and European bond yields were higher on the week.
• The US Dollar Index was little changed on the week.
• Gold futures were also little changed, hovering near a multi-month low.
• Oil futures prices were up for the week, but still relatively close to a multi-month low.

Key this week

Central Bank Watch: The main central bank focus this week will be the Bank of Canada’s Interest Rate Decision on Wednesday, accompanied by its Monetary Policy Statement and Press Conference, as investors look for further guidance on the outlook for interest rates.

Macro Data Watch: The main macroeconomic release this week is the US CPI inflation report on Tuesday, with investors also monitoring Chinese GDP and Retail Sales, alongside US PPI data on Wednesday, before attention turns to US Retail Sales on Thursday.

Earnings Watch: The second quarter US earnings season starts this week, with major US banks reporting alongside ASML, Taiwan Semiconductor and Netflix.

Steve Miley (The Market Chartist)

Editor in chief

Steve Miley is the Market Chartist and has 32 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued