Market Flash: Inflation and the World Cup Heat Up

U.S. stocks bounced Monday, with the S&P 500 up 1.2%, the Nasdaq up 2.1%, and the Dow up 0.6%, recovering from a rare losing week as AI-linked shares found buyers again. The S&P 500 and Nasdaq entered Tuesday on pace for their strongest quarter in six years, while the Dow was tracking toward its best quarter since 2022.

The catch is that the second half has a high bar. AI infrastructure spending remains the market’s favorite growth story, but also its crowded theater exit. Major technology companies including Microsoft, Alphabet, and Amazon are forecasting roughly $730 billion in combined capital spending this year, making earnings delivery the next test for a market already pricing in plenty of future perfection.

Inflation Had the Last Word

The May PCE report gave both sides something to argue with. Personal income, disposable personal income, and consumer spending each rose 0.7% for the month, while the PCE price index increased 0.4% month over month and 4.1% from a year earlier. Core PCE rose 0.3% for the month and 3.4% from a year earlier, per the BEA’s May personal income and outlays report.

Markets treated the report as a case for Fed patience in July, with September still very much alive. After the release, traders trimmed July hike odds while keeping a later move in play.

Growth Looked Better, Details Felt Mixed

First-quarter GDP was revised up to a 2.1% annual rate, a cleaner headline for an economy that has kept surprising the recession desk. The BEA said investment, exports, government spending, and consumer spending all contributed to growth, while imports rose and subtracted from the calculation, according to the agency’s latest GDP release.

Manufacturing was less tidy. Durable goods orders fell 4.5% in May to $332.1 billion after two monthly increases, mostly due to transportation equipment. Excluding transportation, orders rose 1.3%, which makes the headline look harsher than the underlying read in the Census Bureau’s May durable goods report.

Consumers also sounded a little less miserable, which counts as progress in 2026. The University of Michigan’s final June sentiment index rose to 49.5 from 44.8 in May, with expectations improving more than current conditions, though the index remained well below its June 2025 level, according to the University of Michigan’s June consumer sentiment survey.

Housing Got a Bill and a Reality Check

Housing had a strange week: better policy optics, still-difficult math. New single-family home sales ran at a 580,000 annual rate in May, down 7.3% from April, while the supply of unsold new homes reached 10.3 months and the median sales price came in at $424,900, according to the Census Bureau’s new residential sales report.

Homebuilder shares rallied after Congress passed a housing bill aimed at speeding affordable housing supply, with the PHLX Housing Index up 5.4% and major builders including D.R. Horton and Lennar gaining more than 6%. The legislation’s path remained unusual after President Trump canceled a planned signing, though analysts said the bill could still become law through inaction over a 10-day window, according to coverage of the homebuilder rally.

The Fed’s Independence Had a Supreme Court Week

The Supreme Court blocked President Trump’s effort to remove Fed Governor Lisa Cook, preserving specific protections around Federal Reserve governors even as a separate ruling expanded presidential power over other agency leaders. For markets, the issue is larger than one seat: central bank independence is part of the plumbing behind rate credibility, Treasury demand, and inflation expectations.

The ruling landed as the Warsh Fed is already trying to reset the tone. Earlier this month, the Fed held rates at 3.50% to 3.75%, dropped much of its forward guidance, and showed projections in which nine policymakers expected a rate hike by year-end.

Oil Risk Stayed on the Tape

The U.S. and Iran agreed to halt recent Gulf hostilities and renew talks over the Strait of Hormuz, following several days of strikes and counterstrikes that kept energy markets jumpy. Vessels could move freely again under the interim arrangement, though the weekend showed how fragile that peace still is.

Oil rose Monday while remaining sharply lower for the month, with Brent settling at $73.15 and WTI at $70.75. The dollar’s strength also kept pressure on global markets, with the yen touching 161.97 per dollar, its weakest level since 1986, while gold tracked toward its steepest quarterly drop since 2013.

World Cup Heat Check

The World Cup knockout rounds came with a different kind of pressure: heat. A heat dome over the central and eastern U.S. and parts of Canada is expected to push heat indices toward 105 to 115 degrees Fahrenheit in some areas, affecting matches from Toronto to Kansas City to East Rutherford and Philadelphia. FIFA has mandatory three-minute hydration breaks in each half for every match.

The tournament still delivered its usual theater. Paraguay stunned Germany 4-3 on penalties after a 1-1 draw, sending Germany into the kind of sporting autopsy usually reserved for fiscal cliffs and central bank press conferences. It was Germany’s first-ever World Cup penalty shootout loss.