Another oil shock related to the war in Iran dominated the week, pushing energy prices sharply upward and reigniting inflation pressures the Federal Reserve had yet to fully contain.
Equities held up better than the broader environment might have suggested, with the S&P 500 extending its streak to eight consecutive weeks. The gains, however, masked a quieter shift toward caution, with borrowing costs staying elevated and volatility on the rise.
Below is the weekly scorecard.
Stock Index Performance
Major Forces Shaping Markets
The Fed shifted its stance. The Federal Reserve’s April meeting minutes, released on May 20, were more aggressive than markets expected. With inflation well above its 2% target, a growing number of committee members argued the next move could be a hike rather than a cut. Markets have since priced out most expected cuts this year and are now factoring in a potential rate increase by late 2026 or early 2027.
Eyes turn to June Fed meeting. On Friday, May 22, Kevin Warsh was officially sworn into office as the Chair of the Federal Reserve, marking the end of Jerome Powell’s 8-year tenure as Chair. Now, all eyes are on the June 16-17 meeting. Previously, Warsh was expected to cut rates; however, as short-term bond rates continue to respond negatively to Warsh’s potential dovish approach, pundits argue that a rate hike may be necessary instead. As of May 26, markets are pricing in a 97.2% chance of rates holding steady at the June meeting, but there is now a greater-than-10 % chance of a hike at the July meeting, according to the CME FedWatch tool.
Consumers felt it. The University of Michigan’s Consumer Sentiment Index fell to an all-time low of 44.8 in May, weighed down by rising gasoline prices and war-related uncertainty. 57% of those surveyed, up from 50% in April, cited high prices as directly eroding their finances. The labor market remained solid, but confidence this low rarely stays disconnected from spending for long.
The Week Ahead
Markets are now debating not whether the Fed will cut, but whether it may need to hike. With some forecasters projecting the consumer price index (CPI) approaching 6% annually in the second quarter, any Fed communication leaning toward tighter policy will move markets. Inflation expectations are already tightening financial conditions without a rate increase, leaving little room for policymakers to sound reassuring.
The oil market warrants equal attention. With Brent crude consistently spiking above $100, sustained energy costs are a primary reason inflation projections continue to rise. Further escalation around the Strait of Hormuz would strengthen the case for keeping rates elevated and pressure risk assets. Credible progress toward de-escalation, on the other hand, could ease oil meaningfully and give both the Fed and markets more flexibility.
As always, know that we are staying apprised of what levers are moving markets to help you stay informed. And, if you have any general questions about your portfolio, we are here to help. Just reach out, and we can connect.
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