Markets returned to positive territory for the week, with the turning point occurring Thursday after the announcement of a potential deal with Iran that would extend the ceasefire while reopening the Strait of Hormuz for the first time since February 27. Oil fell, which helped push Treasury yields lower, and investors hoped inflationary pressures would ease in the coming months and provide relief to parts of the economy feeling the pinch of higher prices. Economically and interest rate-sensitive U.S. Small- and Mid-Cap stocks continued their strong 2026 run, with each posting new all-time highs on Friday.
The economic data for the week emphasized the growing risk of continued inflationary pressure. Year over year, headline Consumer Price Index (CPI) inflation rose to 4.2 percent in May, the highest level since April 2023, while core CPI inflation checked in at a more modest 2.9 percent, up from the recent low of 2.5 percent before the conflict began. Much like in every inflation report, there was good and bad news, but the overall reality greeting new Federal Reserve Chair Kevin Warsh at his first meeting this week is that no measure of inflation has been at the U.S. central bank’s 2 percent target since March 2021, while nearer-term measures are all headed upward.
The impact of higher inflation showed up in the National Federation of Independent Business (NFIB) Small Business Optimism Index, which fell to its lowest level since October 2024. Importantly, a net 36 percent of respondents reported having raised prices in the past three months, the highest level since March 2023. Casting further uncertainty over the path of future inflation, a net 34 percent plan to raise prices in the next three months, marking the highest level since July 2022, when CPI was running hot. While overall labor markets had a strong year in 2025, this report hinted at the potential for a future slowdown, with only 9 percent of respondents planning to hire in the next three months, the lowest since May 2020, while a near-record low in data stemming back to late 1974 plan to invest in their business in the coming months.
The pressure of higher prices continued to show up in the University of Michigan Consumer Sentiment Survey. Encouragingly, the survey results rose; however, it remains at the second-lowest level in history, just above last month’s all-time low in data back to 1978. This survey continues to paint a picture of how consumers’ economic experiences differ depending on their level of wealth and income. While lower-income consumers have recently posted dour sentiment due to higher prices, the June survey saw a particularly strong increase in this segment as gas prices fell from their recent high of $4.56 on May 20 to $4.16 on June 8 (the survey was taken May 19 to June 8), when the survey window closed. This is not surprising given that gasoline comprises a larger share of lower-income consumers’ budgets. Overall, consumers across all segments continue to be impacted by high prices, with the survey noting that 57 percent of consumers spontaneously mentioned that high prices were eroding their personal finances, unchanged from last month and up from 36 percent a year ago. The survey also showed that consumers increasingly view inflation as a bigger risk than unemployment, with those who believe inflation is the biggest risk rising to 38 percent from 23 percent at the beginning of the year, while unemployment risks have fallen from 14 percent to 6 percent.
This sets the stage not only for the importance of energy prices and reopening the Strait of Hormuz but also for the challenges the Federal Reserve faces in the coming months. We, much like the markets, believe the Fed will stand pat as long as it can, but with the labor market healing, all eyes shift to whether the Fed focuses on its inflation mandate, which could lead to rate hikes later in 2026.
All of this was overshadowed by Friday’s initial public offering of Elon Musk’s SpaceX, which quickly became the largest public listing in history. The company isn’t currently profitable, but enthusiasm is driven by its future potential—potential that may or may not be realized. For investors in search of exposure, the good news is that it will likely be included quickly in many indices and exchange-traded funds (ETFs). History has shown, however, that not every hotly anticipated IPO has lived up to initial expectations.
While each situation is unique, the reality is that large IPOs have historically struggled in the year after their listing. Look no further than the prior five largest U.S.-listed IPOs—Alibaba (BABA) in 2014, Visa (V) in 2008, Meta (META) in 2012, General Motors (GM) in 2010, and Uber (UBER) in 2019. Every single one of these companies delivered negative returns in the year following its first trading-day close, with only Visa providing those who received the IPO offering price a positive return. For those curious about Elon Musk’s Tesla (TSLA) IPO on June 29, 2010, it was a smaller listing but did provide investors both at the IPO price and those who bought on the first day with positive one-year returns. Importantly, however, it underperformed broader U.S. indices (the S&P 500 Index of Large-Cap stocks, the S&P 400 Index of Mid-Cap stocks, and the S&P 600 Index of Small-Cap stocks) during the same time period.
This is not unique. If you look at indices that track IPOs and their subsequent performance, they have, over time, underperformed the aforementioned broader U.S. equity market indices. While they have different inclusion rules and rebalancing methodologies, both the NYSE IPO Index, which tracks NYSE-listed IPOs, and the broader Renaissance IPO Index, each of which adds new IPOs and drops them approximately three years later, have underperformed the broader U.S. indices since their inception.
This analysis does not constitute an opinion on how SpaceX may perform following its public debut but is meant to serve as a reminder that, at least historically, opportunities to buy have often occurred after the initial listing day. With more headline-grabbing IPOs still to come, including Open AI and Anthropic, the hype will likely continue. While they will undoubtedly continue to garner media attention, what matters more to financial markets is the path the economy takes in the coming quarters and how the broader artificial intelligence (AI) theme continues to evolve. The reality is that AI is becoming increasingly expensive to bring to life, and companies that once could fund that spend of cash flow are increasingly having to raise outside capital, both debt and equity. If the Fed needs to raise rates and tighten financial conditions, that would make capital more expensive and potentially put some of that AI funding at risk, with important implications for AI- and tech-related stocks. The good news is that other parts of the equity market, such as Mid- and Small-Cap stocks, have been performing well, with markets continuing to broaden even in the face of heightened uncertainty.
Ultimately, periods like this serve as a reminder that while innovation and new opportunities can be exciting, successful investing has never been about chasing the latest headline. Markets tend to reward discipline, diversification, and a focus on long-term fundamentals—not short-term enthusiasm. Whether an IPO goes on to justify the optimism or falls short, maintaining a balanced approach remains one of the most reliable ways to navigate uncertainty and achieve durable outcomes over time.
Wall Street wrap
Small business confidence slides further as weak demand and rising costs underscore bifurcated economy
The latest National Federation of Independent Business (NFIB) Small Business Optimism Index continued to signal a deterioration in small business confidence. The headline index fell to 95.3 from 95.9, declining every month this year and reaching its lowest level since October 2024, below the 52-year average of 98. Beneath the headline, indicators of demand remain weak. Sales improved modestly to -5 from -8 but remain historically low, just off the +1 reading in February, which tied for the highest since June 2025 (-6), and follows -4 in January. Forward-looking sentiment also deteriorated, with sales expectations falling to 1 from 3, the lowest since the -1 reading around “Liberation Day” and before that October 2024 (-4). Earnings trends showed a slight improvement to -15 from -19; while still historically weak, this is still the “best” of the recent numbers since -14 in December 2021.
Most importantly, inflation pressures remain front and center. A net 36 percent of firms reported raising selling prices, up from 30 and 21 percent in October 2025 and the highest since 37 percent in March 2023, when it was coming down from the record 66 percent in March 2022 (just below the all-time high of 67 percent in December 1974). Price plans for the next three months rose to 34 from 27 and a recent low of 24 in February 2026, marking the highest level since July 2022. Reports of inflation as the single most important problem rose for the third consecutive month, with 18 percent citing it—up two points from April and the highest since December 2024—making inflation the second most important issue.
At the same time, businesses are pulling back on hiring and investment. Hiring plans fell to 9 from 13, after peaking at 19 in November 2025, and are now at the lowest level since May 2020. Job openings that firms cannot fill declined to 29, also the lowest since May 2020. Labor quality as the top problem fell to 13 percent, down five points from April and the lowest since December 2016. Capital expenditure plans slipped to 16 from 17; aside from similar readings in March 2026 and November 2009, this is the lowest since 14 in March 2009 and among the weakest readings in data back to 1975. Compensation remains steady at 31, with compensation plans at 18 for the third consecutive month, but labor costs rose in importance, with 14 percent citing them as their single most important problem, the highest reading in the survey’s history.
Taken together with the accompanying commentary, the report provides important insight into the broader economic environment. “Part of the economy is on a sugar rush—almost all related to AI investment spending—and it’s flying high. The stock market is posting new highs but, again, mostly due to that one soaring sector,” Holly Wade, executive director of the NFIB Research Center, and William C. Dunkelberg, chief economist, noted in the report. At the same time, they added, rising energy prices are creating widespread pressure, with “gas prices [having] spiked reflecting a reduction in the global oil supply but also the risk premium that war has produced. Oil is a cost component in just about everything, so its rising price shows up in just about everything.”
CPI reaccelerates as energy surges and services pressure persists
The May CPI report showed that inflation remains elevated. Headline CPI rose 0.5 percent in May after April’s 0.6 percent increase, pushing the year-over-year rate to 4.2 percent, the highest level since April 2023. Core CPI increased 0.2 percent following a 0.4 percent gain the prior month, bringing the year-over-year rate to 2.9 percent, the highest level since September 2025. Importantly, since the start of the conflict, the past three months have seen headline CPI rise at an 8.2 percent annualized pace, while core CPI has climbed at a 3.2 percent pace.
Food prices rose 0.2 percent and are now up 3.1 percent year over year. Energy increased 3.9 percent in May and is up 23.5 percent year over year, reflecting the direct impact of the conflict. Core goods prices fell 0.11 percent and are down 1.1 percent year over year, likely reflecting less tariff pass-through.
Services inflation remained firm, rising 0.3 percent in May and reaching 3.4 percent year over year, the highest level since September 2025. Supercore services ex shelter are up 3.67 percent over the past year. Near-term trends remain elevated, with the three-month pace for these measures staying strong and the six-month pace showing persistence and continued upward pressure, rising at 3.9 percent and 4.34 percent annualized. This reflects the pass-through of rising energy costs into services, where inflation tends to be stickier and remains a risk.
In addition, Chair Warsh referenced trimmed mean CPI in Senate banking testimony. The Cleveland Fed’s trimmed mean CPI rose 0.26 percent in May, is up 3.6 percent over the past three months, and stands at 2.9 percent year over year. Trimmed mean CPI helps economists and central bankers understand the underlying inflation trend by removing the components with extreme price movements, providing a measure of persistent inflation.
The week ahead
Monday: On Monday, two critical industrial indicators will be released: the NY Empire State Manufacturing Index at 8:30 a.m. ET and the Industrial Production and Capacity Utilization report at 9:15 a.m. ET.
The former is a monthly survey conducted by the Federal Reserve Bank of New York that measures the economic health of the manufacturing sector in New York State, offering a critical leading indicator for nationwide industrial health.
The latter is a report released by the Federal Reserve Board that tracks the change in the total inflation-adjusted output produced by factories, mines, and utilities. The previous reading for industrial production expansion sat at 1.35 percent year-over-year industrial production growth, signaling an economic environment that was too hot for the Fed to cut interest rates, forcing the central bank into a strict “wait-and-see” hold.
Separately on Monday, the National Association of Home Builders will release its June Housing Market Index at 10:00 a.m. ET, with economists predicting a stagnant score of 37. As a key leading indicator, a weak reading signals an upcoming slowdown in construction jobs, raw material spending, and housing starts, presenting an immediate challenge for incoming Fed Chair Warsh as he prepares for his first Federal Open Market Committee (FOMC) interest rate meeting the following day.
Wednesday: The U.S. Census Bureau will release the Advance Monthly Retail Sales report for May at 8:30 a.m. ET, offering a key glimpse into consumer demand, with economists expecting a steady increase of 0.5 percent.
Later on Wednesday, the FOMC will conclude its highly anticipated two-day monetary policy meeting.
At 2:00 p.m. ET, the Fed will release its official policy statement detailing its interest rate decision as well as its quarterly Summary of Economic Projections. This includes the influential “dot plot,” which maps out where individual Fed officials expect interest rates, inflation, and unemployment to go through the end of 2026 and beyond.
At 2:30 p.m. ET, Warsh deliver his first-ever live post-meeting press conference since being sworn into office as the U.S. central bank’s new chair.
Thursday: The Conference Board will publish the Leading Economic Index for May at 10:00 a.m. ET, landing just 20 hours after the Fed’s interest rate decision. Wall Street will use it to see if the index continues its downward trend or starts to stabilize, providing immediate validation or contradiction to the economic outlook delivered by Warsh the previous afternoon.
Brent Schutte, CFA, is chief investment officer of the Northwestern Mutual Wealth Management Company.
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