Market Insights

Stocks face new challenges as war in the Middle East stokes geopolitical tension and threatens to revive inflation.

The S&P 500 climbed early last week, but ended 0.4 percent lower after Israel attacked Iran. It was the first decline in last three weeks, with the index stalling 1.4 percent below its previous record high.

Investors were initially optimistic about improved trade relations with China. There was also positive inflation news, with the consumer price index (CPI) and producer price index (PPI) rising less than expected. Separately, the University of Michigan’s consumer sentiment index rose more than expected as Americans looked for prices to ease.

But then crude oil futures (@CL) started climbing on reports Israel was planning to attack Iran. The airstrikes began early Friday, lifting @CL by 13 percent on the week. It was the biggest gain since late 2022, according to TradeStation data.

The surge in energy prices comes at a difficult time before the Federal Reserve’s meeting on Wednesday. Policymakers have resisted political pressure to cut interest rates, citing the potential inflationary pressures from President Trump’s tariffs. Data like last week’s inflation reports spurred some hopes that the central bank would start shifting toward lower rates. But the latest jump in energy prices could make it harder for the Fed to ease. Tariffs may create another inflationary risk if trade deals aren’t reached soon.

Last week’s jobless claims could also reflect a weaker economy. The number of Americans seeking unemployment benefits for the first time (initial claims) rose more than expected for the third straight week. People staying on benefits (continuing claims) increased to the highest level since November 2021.

Energy and Gold Climb

Energy was the strongest sector last week as crude oil jumped. Gold miners, which can benefit from geopolitical risk, also advanced.

Health care, often viewed as a safe haven, rose for a third straight week.

Financials were the worst performers with a drop of 2.6 percent. Industrials and communications also fell.

Airlines had their biggest weekly decline since President Trump announced aggressive reciprocal tariffs in early April. Retailers and regional banks were other noteworthy decliners.

That mix of price action showed weakness in cyclical industries that benefit from economic growth. It may reflect a “risk-off” sentiment, with potential concerns about a weaker economy.

“There’s a chance real numbers will deteriorate,” JPMorgan Chase (JPM) CEO Jamie Dimon said at a conference on Tuesday. “Employment will come down a little bit. Inflation will go up a little bit. Hopefully, it’s just a little bit.”

Oracle Breaks Out

Oracle (ORCL) had its biggest weekly gain since 2001 and broke out to its first new high since December. It was also top performer in the S&P 500.

The software company reported better-than-expected earnings, revenue and guidance. However, acceleration in its cloud-computing business was the big surprise, driven by growing demand for AI.

JM Smucker (SJM) had its biggest weekly drop in almost eight years after revenue missed estimates. The food company is struggling with high coffee prices and write-downs on its Hostess acquisition. PG&E (PCG) and Edison International (EIX) fell on worries about potential liabilities from California wildfires.

Boeing (BA) also fell after one of its 787 Dreamliners crashed in India, killing 270 people.

Charting the Market

While the S&P 500 has rallied sharply since April, some chart watchers may see signs of weakening.

A narrowing range is one potential pattern. The index moved just 1.6 percent between its low and high, the smallest fluctuation since mid-December.

Its lows have also risen at a sharper angle than its highs. Such a “rising wedge” is sometimes viewed as a bearish reversal pattern because it shows bulls reluctant to push the upside.

Oscillators like MACD, Wilder’s Relative Strength Index (RSI) and nine-day Rate of Change didn’t hit new highs last week as the index climbed. That kind of “bearish divergence” may reflect weakening internals. The Advance/Decline line also failed to confirm the recent high.

In the event of a pullback, traders may eye the June 2 weekly low of 5,863 as the first likely support.

Investors could additionally watch Cboe’s volatility index (VIX), which has stabilized above 16 in the last month.

S&P 500, daily chart, with select patterns and indicators.

The Week Ahead

This week brings the important Fed meeting on Wednesday, along with housing news. However, geopolitical risk could remain a big catalyst — especially if oil shipments through the Straits of Hormuz are threatened.

No important economic data is due today, but Lennar (LEN) reports quarterly results.

Retail sales are tomorrow morning.

Wednesday’s big event is at 2 p.m. ET, when the Fed announces monetary policy and its quarterly economic forecasts. Investors often focus on its “dot plot,” an estimation of future interest rates. Chairman Jerome Powell speaks around 2 p.m.

Other events earlier on Wednesday include housing stats, building permits, initial jobless claims and crude-oil inventories.

Markets are closed on Thursday for Juneteenth.

Friday is “quadruple witching day,” which sometimes brings increased activity. Kroger (KR) also reports earnings before the opening bell.