Weekly Market Recap: Geopolitical Tensions Test Risk Appetite
U.S. equity markets began the week on uncertain footing but found momentum as a series of cooler-than-expected inflation readings reassured investors. A flat Consumer Price Index (CPI) on Tuesday, followed by a sharp decline in the Producer Price Index (PPI) on Thursday, bolstered hopes that the Federal Reserve could be inching closer to rate cuts. However, that optimism was challenged Friday when a major escalation in Middle East tensions between Israel and Iran sent oil prices surging, risk assets selling off, and safe-haven flows intensifying. Still, the major indexes closed the week higher, led once again by tech and AI-driven names.
CPI and PPI Underscore Disinflation Momentum
Tuesday’s CPI report showed that headline inflation was unchanged in May, while core CPI rose just 0.2% month-over-month — below consensus estimates. On a year-over-year basis, core inflation fell to 3.4%, its lowest since 2021. The data revealed notable softness in housing, transportation services, and core goods. The report boosted equity markets and drove Treasury yields lower, as investors increasingly priced in the possibility of rate cuts later this year.
On Thursday, the disinflation narrative gained more credibility with the release of the May PPI report. Headline PPI fell 0.2%, while core PPI declined 0.4% — the steepest monthly drop since the early pandemic period. The decline in producer prices suggests inflation is easing not only at the consumer level but also throughout the supply chain, particularly in input costs and wholesale pricing.
Federal Reserve Holds Rates, Slashes Cut Forecasts
Despite the favorable inflation data, the Federal Reserve held its benchmark rate steady at 5.25%–5.50% during its June 12 meeting, as expected. However, the updated dot plot showed policymakers now expect only one rate cut in 2025, down from three in the previous March projections. Fed Chair Jerome Powell struck a cautious tone in his post-meeting remarks, saying that while recent inflation data was encouraging, “we need to see more good data to bolster confidence that inflation is moving sustainably toward our 2% goal.”
Markets wavered briefly following the Fed decision but found footing again by Thursday, as the PPI reading and strong earnings from tech companies helped offset concerns about a slower policy pivot.
AI and Tech Drive Market Gains Once Again
Technology stocks continued to dominate, with the Nasdaq Composite gaining 2.2% on the week, outpacing both the S&P 500 (+1.4%) and the Dow Jones Industrial Average (+0.8%). Semiconductors led the charge, buoyed by enthusiasm around artificial intelligence and enterprise spending on next-gen infrastructure.
One of the standout performers was Broadcom (AVGO), which surged nearly 15% after raising revenue guidance and announcing a 10-for-1 stock split. Other major gainers included NVIDIA and AMD, both of which benefited from institutional buying tied to AI-related growth expectations. The Nasdaq is now up over 18% year-to-date, driven by a concentrated group of megacap tech names — a dynamic that continues to raise questions about breadth and sustainability as we enter the second half of the year.
Geopolitical Risk Roils Markets on Friday
After a steady rally through Thursday, markets turned sharply lower on Friday following reports that Iran had launched a large-scale missile and drone attack on Israel in retaliation for earlier Israeli strikes on Iranian military and nuclear facilities. The exchange — referred to as “Operation True Promise III” by Iran — marked a significant escalation and raised fears of a broader regional conflict.
The news sent oil prices soaring, with WTI crude rising more than 7% to close above $73 per barrel, its highest level since March. Safe-haven assets rallied: gold jumped 2.3% to $2,370/oz, and Treasury yields declined. Equities, meanwhile, gave up earlier gains, with the Dow falling 770 points (–1.8%) and the Nasdaq and S&P 500 each shedding more than 1%. While markets remained higher on the week, the selloff illustrated how quickly global tensions can reverse sentiment — particularly when energy and defense headlines dominate.
Sector Performance Snapshot
| Sector | Weekly Performance |
|---|---|
| Technology | ▲ +3.1% |
| Communication Services | ▲ Positive |
| Consumer Discretionary | ▲ Positive |
| Energy | ▼ Mixed/Volatile |
| Real Estate | ▼ Lagging |
| Utilities | ▼ Weak |
Key outperformers included semiconductors, cloud software, and digital infrastructure. Laggards were rate-sensitive areas such as real estate and utilities, which struggled amid policy uncertainty.
The Week in Numbers
| Asset Class | Weekly Performance |
|---|---|
| S&P 500 | ▲ +1.4% |
| Nasdaq Composite | ▲ +2.2% |
| Dow Jones Industrial Avg | ▲ +0.8% |
| 10-Year Treasury Yield | ↓ to 4.36% |
| WTI Crude Oil | ▲ +10.7% to $73.18 |
| Gold | ▲ +2.3% to $2,370/oz |
| U.S. Dollar Index (DXY) | ▼ –0.6% |
Looking Ahead: Consumer Spending, Fed Speeches, and Options Volatility
Next week’s headline release will be May Retail Sales (Tuesday), a crucial read on consumer demand that will shape second-quarter GDP forecasts. The market will also hear from several Fed officials, including New York Fed President John Williams and Chicago Fed President Austan Goolsbee, who may offer fresh guidance on the inflation and policy outlook. On the corporate side, earnings from Oracle, Lennar, and Kroger will provide insight into enterprise spending, housing, and retail trends. Lastly, quadruple witching on Friday — the simultaneous expiration of stock options, index options, stock futures, and index futures — could add volatility to the back half of the week.
Bottom Line
This week reaffirmed the market’s central narrative: inflation is cooling, the Fed is watching closely, and technology remains the dominant driver of index-level performance. But Friday’s geopolitical shock served as a critical reminder that macro conditions can shift rapidly, particularly in energy-sensitive sectors. For now, the market remains pinned between softening inflation and persistent rate uncertainty — with volatility just beneath the surface.