The S&P 500 remains historically resilient as we approach the halfway point of 2026, and the reasons for last week’s reversal higher off six-week lows reached in the front half of the week were legitimate market positives. Those included, in order of importance: Fading geopolitical angst with a U.S.-Iran peace deal finally being signed, a subsequent decline in inflation fears that proved one of two components supporting a return of the soft-landing/Goldilocks outlook, rejuvenated AI enthusiasm stemming from Friday's SPCX IPO, and a potentially new Fed bias.
All of these have set the stage for a renewed leg higher under the critical assumption that no surprises loom, as they are “fragile” at the moment and all face separate but interrelated risks that could quickly change the outlook and bullish setup.
Starting with the 800-lb. gorilla in the room, the U.S. and Iran have been “close to a peace deal” multiple times since March, and none have crossed the proverbial finish line. But, while the peace deal has finally been announced, it still has to be signed on Friday, and any delays or deal-derailing developments could send stocks lower.
Second, inflation data continues to suggest the 2026 resurgence is “transitory,” with high oil prices tied to the war accounting for almost all of the upside pressure both here and globally. Any data pushing back on that idea and suggesting inflation is becoming more ingrained would rekindle selling pressure across the Treasury duration curve, a primary driver of the recent bout of volatility.
Third, AI enthusiasm returned in a big way on Friday, with almost every investor focused on the strong first day of trade in SPCX shares after the record-smashing IPO. Any earnings, guidance, or rhetoric pushing back on the prospects for continued AI growth in 2026 and beyond would temper the bullish momentum.
The fourth risk is arguably the most important and simultaneously the wildcard to watch this week: The outcome of and takeaways from the first Warsh-led FOMC meeting. The market has always preferred a firm outlook on policy expectations, including the factors that would change the Fed's course (i.e., data dependence). Any surprises have the potential to meaningfully roil markets, with a more hawkish-than-anticipated outcome being the risk-off scenario, while a dovish outcome would present a near-term risk-on reaction, but with the caveat of renewed run-hot economy risk.
This is a critical week with a number of potential catalysts and likely thinning attendance and lower trading volumes given the holiday-shortened calendar, with markets closed Friday for Juneteenth. So, with liquidity potentially lower than normal and conviction at risk of fading towards a more uncertain state, markets have the potential to make considerable moves this week. Watch these catalysts closely.
My guess is that we are close enough to the midterm elections to start to see some reverberations in the markets based on the outcome. Not a time to be overly aggressive.
Source: Sevens Report 6/15/26