Fixed Income & Equities Markets Week in Review

U.S. equities swung between gains and losses this week as investors weighed geopolitical risk and softer than expected inflation data. Technology shares remained under pressure through midweek as investors appeared to be taking some profits and/or raising funds in front of Friday’s SpaceX (SPCX) initial public offering (IPO). Sentiment improved later in the week on reports that the U.S. and Iran were nearing a memorandum of understanding that could be signed as early as next week. Softer-than-expected core inflation readings also supported risk appetite and modestly reduced expectations for a Federal Reserve rate hike in 2026.

Investor sentiment shifted repeatedly with each geopolitical update. Little additional progress had seemingly been made toward a peace agreement at the front end of the week. A weekend flare-up between Israel and Iran and a subsequent exchange of strikes between the U.S. and Iran after a U.S. Apache helicopter was downed lifted geopolitical tensions. President Trump adopted a more aggressive tone, warning Iran would “pay the price” after a prolonged negotiation process and threatened to take control of Iranian energy infrastructure. U.S. equities sold off on escalation concerns, with the S&P 500 falling 1.6% on Wednesday. Rhetoric soon reversed as Trump canceled proposed Thursday evening strikes and noted negotiations were ongoing and a deal was near, helping lift the S&P 500 1.75% on Thursday. By Friday morning, reports indicated the two sides had agreed on deal text; a deal could potentially be signed next week. Despite intermittent flare-ups, markets remained optimistic for a diplomatic resolution.

Inflation data and Friday’s SPCX IPO were other major themes this week. Both the core Consumer Price Index (CPI) and the core Producer Price Index (PPI) came in cooler-than-expected for May, with core CPI rising 0.2% m/m versus 0.3% consensus and core PPI increasing 0.4% m/m versus 0.5% expected. According to the CME FedWatch Tool, the probability of the fed funds rate being unchanged or lower by year-end rose to 43.5% as of Friday morning, that is up from 29.3% a week earlier. The softer data helped to somewhat ease concerns around oil and AI capex related inflation pressures, at least temporarily. SPCX surged more than 20% in early Friday trading; leading up to Friday the IPO was said to be oversubscribed by 4x. While some of this week’s early weakness likely reflected geopolitics and some profit-taking, part of the pressure may also have stemmed from investors raising cash ahead of the SPCX offering. OpenAI confidentially filed for an IPO early in the week; timing and valuation details are unknown. While equity supply remains an area of focus, both the SPCX and upcoming mega-IPOs could act as another catalyst behind the AI trade.

After getting hit hard last Friday and facing additional pressure early this week, semiconductors ultimately rebounded sharply. The iShares Semiconductor ETF (SOXX) rose 8.4% on Thursday and was up more than 10% for the week as of Friday morning. Mega-cap technology, particularly the Magnificent Seven, did not fare as well, with the Roundhill Magnificent Seven ETF (MAGS) down 2.8%. Some of that weakness can be directly attributed to Apple (AAPL), which fell more than 5% on the week following some underwhelming takeaways from its Worldwide Developers Conference. More broadly, both institutional and retail investors may have trimmed mega-cap exposures ahead of the SPCX IPO.

U.S. equity earnings growth, a still-solid macro backdrop, renewed optimism around a near-term peace deal, and continued AI capex tailwinds remain supportive items for U.S. equities. Looking ahead, next week’s main event is the Federal Open Market Committee’s June meeting, Kevin Warsh’s first as Fed Chair. While markets expect no change in the fed funds rate, any commentary from Warsh on inflation and the Fed’s expected rate path will be in focus.