Market Update

Oil prices fell sharply this week as the prospects of a peace deal with Iran brightened.  On Friday, West Texas Intermediate Crude Oil was hovering around $77 a barrel, a fall of about $12 from the prior week, and far below the $90 to $110 price per barrel when war in Iran was raging. The drop in oil prices caused stocks and Gold to rally off their lows.  Even after the rally the S&P 500 is virtually flat so far in June, seemingly stuck in the June gloom that inhabits much of Southern California this time of year. Nonetheless, our outlook remains sunny for the rest of the year. Here is a quick summary of what could go right and wrong for the remainder of 2026.

The Iran War

The Memorandum of Understanding outlining the agreement between the United States and Iran was signed by President Trump on Thursday and was scheduled to be signed by the Iranians on Friday. As of this writing Iran has still not signed, but based on latest reporting, the fragile deal is still holding. A resolution of the Iranian conflict would be a boost for the global economy and stocks, mostly due to the drop in oil prices. The logic of a peace dividend is simple. Lower oil prices reduce inflation wordwide and allow central banks to lower interest rates if needed. Lower oil prices also reduce energy costs, easing consumer budgets and corporate manufacturing costs.

Inflation

The Federal Reserve met under Chairman Warsh’s leadership for the first time this week. Warsh highlighted that the risks of inflation were elevated.  He also pointed out that inflation remained above the Fed’s 2% target and reiterated his commitment to the 2% target.  Therefore, the Federal Reserve has a bias toward raising the Fed Funds rate between now and the end of the year to curb inflation.  The Fed’s rate talk caused markets to briefly sell-off.  May’s consumer price inflation came in hot at 4.2%, though much of the increase was energy related. Core PCE, the Fed’s favored inflation measure rose by 3.3% YOY in April.  If inflation remains elevated and the Fed is forced to raise rates, higher interest rates could be a headwind to stocks.

Earnings Growth

Ultimately, stocks rise and fall on corporate earnings. Despite the Iran war and inflation fears, the fundamental success of the market so far this year has been built on earnings growth. In the first quarter of 2026 84% of companies beat their earnings targets, and cumulatively reported earnings that were 18% above analyst expectations. Forward looking guidance also rose. Forward earnings per share, the time-weighted average of current analysts’ consensus earnings estimates, rose to another record high. While analysts could certainly be wrong, the base case absent a significant disruption is for earnings to continue to growth and the economy expand for the remainder of this year and next.

Overall

The overall story remains the same. Corporate earnings growth remains strong based on strong fundamentals in the economy. If we see a resolution to the Iran war that curbs inflation, the market could still see upside in 2026.