Investors eye Middle East tensions and the Fed's 'dot plot': What to know this week

Yahoo

9 hours ago

The recent stock market rally hit a pause as an Israeli airstrike on Iran sent oil prices higher and equities lower to end the first full trading week of June.
For the week, the S&P 500 (^GSPC) fell 0.6%, while the Nasdaq Composite (^IXIC) slid 1%. Meanwhile the Dow Jones Industrial Average (^DJI) dropped 1.3%.
In the week ahead, investors will have a close eye on rising tensions in the Middle East, particularly Iran's response. In scheduled events, the Federal Reserve's latest policy statement is set for release on Wednesday. The latest summary of Economic Projections (SEP) — including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future — will also be released at 2 p.m. ET followed by a press conference from Fed Chair Jerome Powell at 2:30 p.m. ET.
Elsewhere in economic news, the release of retail sales for the month of May will also gain investor attention on Tuesday. Markets will be closed for Juneteenth on Thursday.
On Friday, Brent crude futures (BZ=F) surged higher to just below $74 a barrel, while West Texas Intermediate futures (CL=F) changed hands at almost $73 as investors digested the Israeli missile launch on Iran. Both measures were up about 12% or more on the week.
The growing concern is that further escalation could push oil even higher and eventually weigh on inflation. JPMorgan head of global commodities research Natasha Kaneva wrote in a June 12 note to clients that, should escalations of the conflict become "severe," oil could rise to about a $120 barrel and push the Consumer Price Index (CPI) up to 5%. The latest data from the Bureau of Labor Statistics showed the prices increased 2.4% in May.
Given that trade concerns have stopped swinging markets, Bank of America Global Research chief investment strategist Michael Hartnett wrote in a note to clients on June 13 that the door is "wide open for stock bulls" as long as the pop in oil prices is "short-lived."
US economic growth data has largely remained resilient through the onset of President Trump's tariffs, and economists expect that trend to continue in the latest retail sales report.
The May retail sales report is expected at 8:30 a.m. ET on Tuesday, with economists anticipating sales fell 0.6% over the prior month. But retail sales excluding auto and gas are expected to have risen 0.4%. And the control group of retail sales, which excludes several volatile categories and factors from the gross domestic product (GDP) reading for the quarter, is anticipated to have risen 0.5% in May.
Wells Fargo's team of economists said the report is likely to show "the consumer has yet to run out of steam."
The path forward for interest rates will be squarely in focus in the week ahead. Recent economic data has shown some signs of cooling in the labor market, while inflation continues to decline.
This has some economists arguing that the discussion around Federal Reserve interest cuts, and specifically why the central bank would lower rates at all this year, might be changing.
"Combined with the solid May jobs report, the CPI data reduces the chances of a nasty bout of stagflation," Bank of America US economist Stephen Juneau wrote in a note to clients on Wednesday.
"That means a lower risk of 'bad' cuts (due to a collapse in the labor market) but increased probability of 'good' cuts (solid labor market and slowing inflation)."
With the Fed widely expected to hold interest rates steady again on Wednesday, investors will be closely following the Summary of Economic Projections and Chair Jerome Powell's press conference for any clues on what could drive the Fed to reduce interest rates for the first time this year.
Entering the meeting, markets are pricing two interest rate cuts from the Fed in 2025, in line with the central bank's median dot plot projection from March. But since then, there have been significant changes to tariff policy, which will put any updates to the Fed's outlook in particular focus.
"Any material change to the dot plot would be inconsistent with the central bank's recent mantra of wait and see," Oxford Economics chief US economist Ryan Sweet wrote in a note to clients previewing the event.
Economic data: Empire manufacturing activity, June (-7.5 expected, -9.2 prior)
Earnings: No notable earnings.
Economic data: Retail sales month-over-month, May (-0.6% expected, +0.1% prior); Retail sales excluding auto and gas month-over-month, May (+0.4% expected, +0.2% prior); Retail sales control group month-over-month, May (+0.5% expected, -0.2% prior); Industrial production, month-over-month, May (0% expected, 0% prior); NAHB housing market index, June (34 prior); Import price index month-over-month, May (-0.3% expected, +0.1% prior)
Earnings: Lay-Z-Boy Incorporated (LZB)
Economic data: Building permits month-over-month, May preliminary (0% expected, -4% prior); Housing starts month-over-month, May (-0.2% expected, 1.6% prior); FOMC rate decision (4.25% to 4.5% expected, 4.25% to 4.5% prior); FOMC median rate forecast for end of 2025 (3.875% prior); Initial jobless claims, week ending June 14 (248,000 prior); Continuing claims, weekending June 7 (1.956 million prior)
Earnings: Aurora (ACB), Smith & Wesson (SWBI)
Markets are closed for Juneteenth.
Friday
Economic data: Leading index, May (+0.1% expected, -1% prior); Philadelphia Fed Business Outlook, June (0 expected, -4 prior)
Earnings: Accenture (ACN), CarMax (KMX), Darden Restaurants (DRI), Kroger (KR)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.