|
|
- A U.S.-Iran deal to reopen the Strait of Hormuz could ease inflation pressures and drive a broadening of market leadership beyond technology.
- The Fed held rates steady but signaled concerns about persistent inflation, suggesting a prolonged pause with a potential rate hike on the horizon.
- May retail sales beat expectations across the board, suggesting that consumers continue to spend despite elevated prices.
1. Easing Geopolitical Tensions Could Broaden Market Leadership
The United States and Iran signed a memorandum last week, with both sides agreeing to reopen the Strait of Hormuz to commercial shipping.¹ The passage carries roughly one-fifth of the world’s seaborne oil trade and has been effectively closed since the conflict began in late February.² Oil prices fell in response to the deal, though analysts note that shipping activity is likely to take several months to return to pre-conflict levels as mine-clearing operations and logistical efforts continue.²
The agreement had been widely anticipated for several days before it was announced, which means much of the positive news may already be reflected in asset prices. U.S. equity markets are currently trading above where they stood before the conflict began.
Even so, we believe the improved outlook carries meaningful implications for investors. Reduced energy costs could help ease inflation pressures and put lower bond yields, conditions that have historically supported a rotation into cyclical sectors and other areas that have lagged. The rally since the March low has been led predominantly by technology, and we anticipate a broadening of leadership that includes cyclicals, U.S. mid-caps, and equal-weight exposure. In our view, lower oil prices are also likely to provide relief for energy-sensitive economies abroad, with international developed value stocks positioned to benefit most.
2. Fed Holds Rates Steady, Signals Possible Hike Ahead
The Federal Open Market Committee wrapped up its meeting last week, holding the federal funds rate target range at 3.5% to 3.75%.3 The decision was widely expected, so attention quickly shifted to the updated economic projections and the tone set by new Fed Chair Kevin Warsh.
The policy statement was notably shorter and more focused on inflation, dropping any language suggesting rate cuts ahead. The Fed’s projections now reflect a meaningful upward revision to the inflation outlook, which appears to have displaced the previously expected 2026 rate cut.3 Committee members remain divided: nine officials see at least one rate increase ahead, eight project no change, and one still expects a cut. Chair Warsh did not submit a forecast.
The Fed also trimmed its near-term growth outlook while upgrading its view of the labor market. We believe a prolonged pause remains the most likely outcome. A higher-for-longer rate environment, if supported by resilient growth and gradually moderating inflation, can remain consistent with healthy equity valuations.
3. Retail Sales Point to a Resilient Consumer
The Census Bureau reported last week that retail sales rose 0.9% in May from the prior month, topping expectations for a 0.6% gain and accelerating from a downwardly revised 0.4% increase in April.⁴ Gas station sales were a meaningful contributor, rising 3.4% month-over-month as fuel prices remained elevated throughout much of May.⁴
Importantly, the strength was not limited to gasoline. The control group, which strips out autos, gas stations, building materials, and food services, and contributes more directly into GDP calculations, also rose solidly during the month.⁴ That breadth suggests that the underlying consumer remains on firm footing.
Fuel costs have eased since the May data was collected. The national average for a gallon of regular gasoline has fallen back to roughly $4.00, down from approximately $4.56 at its peak in late May.⁵ If that decline holds, it should provide additional support to household budgets heading into summer. We believe the report reinforces the picture of a consumer backed by steady employment and wage growth, one that continues to spend even as sentiment surveys have remained weak.
For the period ending 6/19/26.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 NPR, U.S. and Iran Announce an Initial Deal to End the War and Reopen the Strait of Hormuz, June 15, 2026
2 CNBC, U.S. Crude Oil Falls Below $85 as U.S. and Iran Near a Deal to Reopen Hormuz, June 12, 2026
3 Federal Reserve Board of Governors, Federal Open Market Committee Statement and Summary of Economic Projections, June 2026
4 U.S. Census Bureau, Advance Monthly Sales for Retail and Food Services, June 17, 2026
5 AAA, Daily National Average Gasoline Prices, June 18, 2026
Disclosures
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_25
