Middle East Tensions Weigh on Markets as Oil Surges
Markets closed lower today as geopolitical tensions escalated following Israel’s overnight strikes on Iranian nuclear and military targets. The sell-off was driven largely by investor concern over potential disruptions in global oil supply, especially through the Strait of Hormuz — a narrow corridor near Iran through which up to 30% of the world’s seaborne oil passes. Oil prices surged more than 7% intraday as traders priced in the growing risk premium.
Despite the sharp move in energy markets, economic data earlier this week offered reasons for optimism.
CPI Cools, Tariffs Hold — But Markets Wait for Clarity
Wednesday’s May CPI report came in at 2.4% year-over-year, slightly below the 2.5% forecast. It marked another month of cooling inflation despite the implementation of new U.S. tariffs — a welcome surprise to markets. While the full impact of trade policy remains to be seen, the lack of inflationary pressure so far is fueling hopes of a soft landing.
Also this week, President Trump and President Xi reached a tentative framework for a new U.S.–China trade deal. The proposed agreement includes a combined 55% U.S. tariff on Chinese goods already under duty, and a 30% tariff on all others. China, in turn, will impose a 10% tariff on U.S. exports. The deal also includes plans to ease restrictions on rare earth exports and U.S. chip software. The agreement now awaits formal approval by both leaders.
Markets remained mostly flat on the trade and inflation news as investors appeared to wait for final confirmation and further data before moving decisively.
S&P Ends Week Just Below 6,000
After a volatile week, the S&P 500 slipped back below the key 6,000 level, ending slightly negative. While strong economic data offered support earlier in the week, Friday’s geopolitical flare-up in the Middle East reversed sentiment and sent investors toward safe-haven assets.
Looking Ahead
Next week, markets will be watching for updates on the U.S.–China trade deal, energy prices, and any retaliatory action out of Tehran. Domestically, the Fed’s rate outlook and June inflation expectations will also come into sharper focus as we move into the second half of the year.