Outlook The debate between market momentum and macroeconomic crosscurrents is growing louder on Wall Street. While structural risks like sticky core inflation and a higher-for-longer Federal Reserve policy stance remain clear, we continue to believe that fundamental economic and corporate earnings growth are the primary drivers of long-term asset performance. From our perspective, these fundamental engines remain in good shape, supported by two powerful demand pillars. First, the generational spending power of Baby Boomers continues to provide a structural tailwind for consumer-facing industries and services. Second, the massive corporate capital expenditures dedicated to artificial intelligence infrastructure are providing highly visible support for corporate earnings over the next several quarters. However, a disciplined investment process requires balancing structural tailwinds against emerging risks. We are keeping a watchful eye on headline inflation metrics and, more importantly, real wages (wages adjusted for inflation). If real wage growth stays under pressure or dips further into negative territory, it could place a hard ceiling on broader consumer discretionary demand. As part of our commitment to managing risk, we continue to monitor these indicators closely to ensure our portfolios remain properly aligned.
. . . U.S. equities experienced a volatile week, as investors navigated persistent inflation pressures alongside rapidly evolving geopolitical developments. While markets began the week on unstable footing, driven by elevated price data and rising energy costs, sentiment improved into the latter part of the week as diplomatic progress in the Middle East began to reduce near-term uncertainty. Consumer Price Index (CPI) The May Consumer Price Index report showed headline inflation rising 4.2% year over year, marking the fastest pace in three years, with prices increasing 0.5% on a monthly basis, driven largely by higher energy costs. Encouragingly, core inflation, which excludes food and energy, remained more moderate, rising 2.9% year over year and 0.2% month over month. This suggests that underlying price dynamics tied to domestic demand have not meaningfully reaccelerated; rather, recent increases appear to be driven more by supply-side and geopolitical factors. Producer Price Index (PPI) Additional evidence of ongoing cost pressures came from producer price data, which pointed to continued increases at the wholesale level, though more modest at the core level. The stronger-than-expected headline reading reflected elevated input costs, particularly across energy and transportation. Markets interpreted the latest inflation data as mixed, with headline pressures driven largely by energy while underlying inflation remained more contained. Core CPI rose modestly, and recent commentary suggests that price increases are not broadly spreading across the economy, indicating that underlying inflation trends remain relatively measured. Geopolitics: U.S.-Iran Peace Agreement On Friday, the most significant catalyst and key driver of improving sentiment was confirmation that the United States and Iran had reached a framework peace agreement. After months of escalating conflict, officials indicated that both sides had agreed to initial terms, including a 60-day contingency period and steps toward reopening key shipping routes such as the Strait of Hormuz. The announcement prompted a sharp pullback in oil prices and helped alleviate near-term inflation concerns. More broadly, the market response suggests investors are increasingly pricing in a higher probability that the agreement will be implemented, contributing to a stabilization in sentiment and a modest recovery in equities. Market & Policy Implications Taken together, these developments highlight that the current inflation environment is being influenced as much by geopolitical dynamics as by domestic economic conditions. As a result, the path of inflation and therefore monetary policy is likely to remain uneven and highly sensitive to further developments, particularly in energy markets. For the Federal Reserve, this creates a more complicated policy backdrop. While underlying inflation trends appear relatively contained, persistent headline pressures driven by energy costs may limit the central bank’s ability to shift toward easing in the near term. In this environment, policymakers are likely to maintain a cautious approach, balancing encouraging signs of stability in core inflation against the risk that external shocks could keep inflation elevated for longer. Looking ahead, markets are likely to remain responsive to both incoming inflation data and geopolitical developments. While easing tensions in the Middle East provides a supportive backdrop, the sustainability of that improvement will be critical in determining whether recent inflation pressures begin to moderate. At the same time, investors will continue to closely monitor signs that underlying inflation remains contained, as this will shape expectations for the Federal Reserve’s policy path. | 
