While stock markets continue to bet on some kind of resolution to the war with Iran, there are no shortage of other risks heading into the new month. Stocks continued to rebound from their March lows and ended May at record highs as confidence grew that the Strait of Hormuz would reopen soon. This week gave some hints as to what the reaction to the resolution might be, as bond yields fell, oil prices fell and major stock averages rose on hopes that the Trump administration was moving closer to a peace deal. The Nasdaq Composite Index has risen more than 8% since the end of April. President Trump’s nuclear demands remain a key bottleneck to any deal. The president said Friday that Iran “must agree to never have nuclear weapons” and that he was convening in the Situation Room to deliberate a “final decision.” But the unpopularity of the U.S.-Iran war and rising gas prices, especially in a critical midterm election year, have investors convinced the conflict will soon end. Rhys Williams, head of investments at Wave Capital Management, said: “The most important thing from a global economic perspective is opening the Strait of Hormuz, and we’re really pushing down the nuclear path.” “That’s the trade I’m thinking about.” What drives AI If bond yields continue to fall from their highs and oil prices retreat, nothing short of war will cause stock investors to pause. Artificial intelligence remains a key driver of the market, with profits increasing significantly in the first quarter for almost all companies, not just the Magnificent Seven companies. S&P 500 earnings are expected to post a composite growth rate of more than 28% in the first quarter, the fastest pace since the fourth quarter of 2021, according to FactSet data. Information technology stocks alone are expected to post an overall growth rate of more than 54%. Snowflake’s results this week were the latest to reassure investors that AI is worth investing in. The cloud-based data platform’s adjusted operating margin outlook for its fiscal second quarter was stronger than Street expectations, allaying concerns that AI will replace software companies and contributing to gains in other enterprise software stocks. This extends this week’s AI rally beyond just semiconductors. Other software companies, including CrowdStrike Holdings Inc. and Palo Alto Networks Inc., are expected to report earnings next week. Chip giant Broadcom also plans to report. Consumers in the doldrums Next week’s May nonfarm payrolls report will shed light on the state of the labor market and how much impact AI is having on employment at a time of rising inflation. Economists expect the economy to grow by 100,000 people in May, down from 115,000 people in April, according to FactSet. The unemployment rate is expected to remain stable at 4.3%. Barring any major surprises, the market is likely to take this number in stride as investors adjust to a “low jobs, low layoffs” environment. However, Gregory Daco, chief economist at EY Parthenon, expects wage growth to come under pressure and could dampen consumer spending in the future. What happens to consumer spending may also come down to the length of the war with Iran and what happens to oil and gasoline prices. The April Personal Consumption Expenditure Price Index released this week showed Americans’ savings rates have fallen, which could mean fewer buffers to absorb future shocks. Seasonally, stocks also have other challenges. June was the worst month for stocks in a midterm election year, and investors largely expected the market to enter a short period of consolidation. “The real bet here is that we will slowly but surely come to a resolution on the Iran issue, and that will happen within the next two to three weeks,” said Wave Capital’s Williams. “I don’t think it’s possible to talk about the Strait of Hormuz being closed in October and not have a market reaction.” Week Ahead Calendar All Hours (ET). Monday, June 1, 9:45 a.m. S&P Global PMI Manufacturing Final (May) 10 a.m. Construction Expenditures (April) 10 a.m. ISM Manufacturing (May) Earnings: Hewlett Packard Enterprise Tuesday, June 2, 10 a.m. JOLTS Jobs (April) Earnings: Ulta Beauty, Palo Alto Networks, Dollar General Wednesday, June 3, 8:15 a.m. (ADP) Employment Survey (5 Mon) 9:45 AM S&P Global PMI Service Final (May) 10:00 AM Endurance Order Final (April) 10:00 AM Factory Order (April) 10:00 AM ISM Service (May) Revenue: Broadcom, CrowdStrike, Veeva Systems Thursday June 4th 8:30 AM First Claim (05/30) 8:30 AM Unit Labor Costs (Q1) 8:30 a.m. Final Productivity (Q1) Revenues: Cooper, Brown-Forman, Fastenal Friday, June 5, 8:30 a.m. Preliminary Hourly Wages (May) 8:30 a.m. Preliminary Weekly Average Number of Workers (May) 8:30 a.m. Manufacturing Payroll (May) 8:00 a.m. 30 minutes Non-Farm Payroll (May) 8:30 a.m. Private Non-Farm Payroll (May) 8:30 a.m. Unemployment Rate (May) 8:30 a.m. Consumer Finance (April)
