Bad News? What Bad News?

For the week ended 6/13/26.

Wall Street has developed a remarkable superpower lately: ignoring bad news. Last week delivered another reminder.

Consumer inflation climbed to 4.2% in May, the highest annual reading in three years, as higher energy prices stemming from the now-apparently-concluding Iran conflict worked their way through the economy. Producer prices weren't much better, rising at a 6.5% annual pace, their fastest increase since 2022. Under normal circumstances, hotter inflation, elevated interest rates, and geopolitical uncertainty would have investors heading for the exits.

Apparently, not anymore.

The encouraging news is that much of the recent inflation surge appears to have been energy-driven. With oil prices retreating over the past several weeks – and news this weekend of a U.S.-Iran peace agreement that could permanently reopen the Strait of Hormuz – the worst of this particular inflation shock may already be behind us, assuming the agreement holds.

Core inflation, while still stubbornly above the Federal Reserve's target, remains considerably more subdued than the headline number. That's one reason the bond market actually managed a modest gain last week despite the inflation headlines. Investors appear increasingly convinced that while inflation remains sticky, another round of aggressive rate hikes is far from a foregone conclusion.

Meanwhile, equity investors found something far more exciting to talk about.

SpaceX made its long-awaited public debut, immediately joining the ranks of America's corporate heavyweights with a staggering $2.1 trillion market capitalization. Apparently, launching rockets is now almost as profitable as launching AI companies.

The result? Domestic stocks gained 70 basis points for the week, foreign shares rose 60 basis points, and publicly traded REITs led all major asset classes with a 1.9% return. Commodities, meanwhile, fell 2.3% as optimism surrounding the peace agreement pushed oil prices lower. Year-to-date, the scorecard remains impressive: domestic stocks are up 9.2%, foreign shares have surged 13.4%, commodities are still ahead by roughly 20%, and – surprise, surprise – the lone laggard remains traditional public bonds.

Which brings us to this week's main event.

Kevin Warsh chairs his first Federal Open Market Committee meeting as Federal Reserve Chairman on Wednesday. While investors shouldn't expect an interest-rate cut, they will be listening carefully for clues about his priorities. A smaller Fed balance sheet, a review of the Fed's economic framework, and a renewed focus on price stability all appear to be high on his agenda.

With that, enjoy your morning coffee, stay diversified, and remember: markets don't move on headlines – they move when expectations are wrong. Good morning.

Interesting data point of the week.

Source: Visual Capitalist

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