Peace Eludes, Rate-Cut Shot Fades, Semiconductors Slide, But Jobs Shine

News broke Sunday evening that nobody had hoped for. I saw it at the Financial Times first. I don’t know who broke the story. Iran apparently launched a number of ballistic missiles at Israel last night just hours after Israel had carried out a strike against the Hezbollah terrorist organization in Beirut. The Israeli strike in Beirut came after Lebanon and Israel had, we thought, just agreed to renew their ceasefire in talks held in Washington. Hezbollah, however, rejected that truce agreed to by the Lebanese government, which would have required the hostile Iranian proxy to disarm.

Iranian missiles, “in response” set off sirens across northern Israel that according to reports, all either missed their marks or were intercepted. There were no resultant Israeli casualties. Then came the tricky part, at least the U.S. Israel responded to Iran’s attack with strikes inside Iran proper. These attacks included a major petrochemical facility and other targets across the central and western part of that country. According to the Wall Street Journal, the Karoun Petrochemical Company, which is a source of funding for Iran’s Revolutionary Guard, was hit and was damaged. Karoun is already under U.S. sanctions.

Pres. Trump seemingly tried to de-escalate the situation ahead of Israel’s military response, to no avail. Financial markets do not seem to be reacting all that sharply Sunday night into Monday morning as the wee hours pass. Coming off of Friday’s U.S. equity market rout, Crude oil futures are indeed trading higher, Treasury debt securities are indeed trading lower (yields higher). That said, though there are still plenty of hours until the opening bells ring down at 11 Wall St. and up at Times Square, equity index futures are trading in the green (except for the Dow Industrials. Keep in mind that almost no professional money follows that index.).

OPEC+ Ups Production

What’s left of OPEC+ agreed to increase production targets by 188,000 barrels per day starting in July. This is the fourth increase made to OPEC’s oil output quota since the closure of the Strait of Hormuz, which more or less renders the increase at least partially moot.

Musical Chairs

On Friday evening, S&P Dow Jone Indexes announced that Marvell Technology (MRVL) and Flex (FLEX) will be added to the S&P 500 in a couple of weeks. Pool Corporation (POOL) and Campbell’s (CPB) will be deleted from the prestigious and most heavily tracked (by professionals) U.S. large cap equity index.

The Past Week

Wall Street ended the past week in “ugly” mode. The S&P 500 apexed on Tuesday, but the heavy selling held off until Friday when investors were forced to deal with, for the month of May, a third consecutive “much better than expected” BLS U.S. labor market report. This report largely took any last hopes (hopes that were already waning) that the Fed might be able to reduce interest rates at some point this year, right off of the table.

That put the whammy on equity prices as well as on values for precious metals and cryptocurrencies. Bitcoin even traded below $60,000 per token on Friday, though it has since rebounded a bit. Gold futures are now trading at their lowest levels of 2026. Semiconductor stocks, which had already been under pressure, came under intense pressure on Friday. Marvell Technology (MRVL) surrendered a jaw-dropping 16.7% as Micron (MU) gave up 13.3% and Arm Holdings (ARM) was beaten for a loss of 12.8%. Incredibly, for the day on Friday, the Philadelphia Semiconductor Index was pummeled for 10.3% loss as the Dow Jones U.S. Semiconductor Index gave up 8.5%.

On May Employment

It appears that reports of the premature death of the U.S. labor market economy had been greatly exaggerated. The Bureau of Labor Statistics reported a strong labor market report for the month of May on Friday, after having already reported strong months in March and April. Three consecutive months of aggressive hiring across the U.S. economy is no blip on the radar. This is now a trend. Friday’s release was even better than the last two, as with it came upward revisions to those two months and with implications that much of May’s job creation was of the full-time variety.

Looking over the Establishment Survey, we see that job creation in the form of non-farm payrolls for May printed at 172,000 positions, well above the 90,000 or so that had been the consensus view. In addition, the NFP prints for March and April were revised higher from 185,000 and 115,000 to 214,000 and 179,000 respectively. That puts non-farm hires for the month up a net 265,000, which is just stunning considering where economists had put the economy.

Now, we’ll look at the Household Survey. That particular survey shows 149,000 more employed people for the month and 66,000 fewer unemployed people. It’s nice to see these two surveys actually telling similar stories for a change. The number of individuals dropping out of the labor force in May increased by only 17,000 persons, which is a very low monthly number, while the labor force grew by 83,000 participants.

The Fed and markets may not like it, but the economy and labor markets are clearly in a much healthier place than they were several months ago. Who was hiring? Local governments hired 55,000 individuals and the leisure & hospitality industry created 70,000 new jobs. That in itself could be a sign of an expected increase in consumer spending.

More on Employment

The U-3 Unemployment Rate or the “underemployment rate,” which is also drawn from the Household Survey, moved lower in May from 8.2% to 8.1%. The Participation rate held steady at 61.8% and has now held firm at its lowest level since September of 2021. The employment to population ratio similarly dropped from 59.2% to 59.1%. That’s a little misleading.

Low participation is due to increased retirement among older workers. Participation among 25- to 54-year-olds now stands at 83.9%. The 25-year high participation level for that demographic is 84%, so for core workers, by age, participation is extremely high by recent historical standards.

The number of people working part-time for economic reasons decreased by 137,000 persons in May while the number of people working part-time for non-economic reasons increased by 147,000 people. That’s just 10,000 more part-time workers with job creation (from the same survey) of 149,000 positions.

This implies an significant increase in full-time employment of as many as 139,000 full-time positions or a net 255,000 full-time jobs if one uses non-farm payrolls. It’s been quite a while, many years even, since U.S. employers started moving part-timers to full-time status in the kinds of numbers that this report now implies.

Week Ahead

What matters moving forward as markets appear to enter an era of increased uncertainty:

The Geopolitical: It has become increasingly difficult to put a positive spin on the apparently endless hopes that Iran will respect the ceasefire that had saved what was left of that nation from a total collapse. The US has shown more than a little patience with whoever is making decisions in Tehran. It has become glaringly obvious, at least to the common observer, that leadership in Iran either has almost no power of the hardliners, or simply wishes to prolong the military conflict.

Macro: The macroeconomic focus this week will be on inflation for the month of May. May consumer price index will print on Wednesday morning with May producer price index following on Thursday. CPI is expected to have cracked the 4% handle on an annual basis for May, which could have an algorithmic impact once that number prints even though we all know it already. The U.S. Treasury will also auction off $39 billion worth of new Ten-Year Notes on Wednesday afternoon and $22 billion worth of new Thirty-Year Bonds on Thursday afternoon.

The Federal Reserve: The Fed has gone into the group’s media blackout period ahead of the June 17th (next Wednesday) policy decision. That will be the first policy meeting for the FOMC with Kevin Warsh running the show and with Kevin Warsh holding his first press conference as Chair. At least, we won’t have any Fed officials flapping their gums for a week and a half, though it does appear that the algos have learned and have stopped reacting as they used to, when Fed officials speak.

Earnings: First-quarter earnings season has closed. Second-quarter earnings season will not begin in earnest until mid-July. All we have now are the few publicly traded firms that report out of season. That does not mean that there are no headline-level names out there. This morning, we’ll hear from Campbell’s Soup (CPB). On Tuesday morning, The JM Smucker Company (SJM) will go to the tape with their quarterly numbers. Wednesday, both Chewy (CHWY) and Oracle (ORCL will report. Then, on Thursday, Adobe (ADBE), Lennar (LEN) and RH (RH), which is the old Restoration Hardware, will publish data.

– Corporate Events…

Apple (AAPL) will hold the firm’s five-day Worldwide Developer Conference this week. The action begins this morning in Cupertino, Calif. Apple is expected to unveil a new, more conversational version of “Siri” this week, which will be powered by Gemini, which is the AI model run by Alphabet’s (GOOGL) Google. This will also be CEO Tim Cook’s last hurrah before handing leadership of the reins over to incoming CEO John Ternus.

This Friday, SpaceX is expected to be the first of three mega-cap privately held companies to go public in 2026. The stock will debut, as long as nothing changes, at the Nasdaq Market Site under the symbol SPCX. The company is targeting a share price of $135 apiece as this will likely, for now, be the largest initial public offering in stock market history. Anthropic and OpenAI will follow with large IPOs later this year.

Let the Games Begin…

It may not be a financial markets event, but the travel and entertainment worlds will be watching as will the betting markets. Soccer’s World Cup, acknowledged by many as the greatest show in sports, will start this Thursday and run until July 19.

The Week That Was…

Incredible. The S&P 500 posted a ninth consecutive winning week over the past four trading sessions. The beat goes on….

– The S&P 500 lost 2.64% on Friday and 2.59% for the week.

– The Nasdaq Composite surrendered 4.18% on Friday and 4.68% for the week.

– The Nasdaq 100 was hit for 4.77% on Friday and 4.53% for the week.

– The Russell 2000 took a 3.47% hit on Friday and lost 2.94% on the week.

– The S&P Small Cap 600 lost 1.79% on Friday but added 0.83% for the week.

– The S&P Midcap 400 gained 0.17% on Friday but just 0.69% for the week.

– The Dow Transports actually gained 0.65%on Friday and 2.35 for the week.

– The Philly Semis were wrecked for 10.26% on Friday and 4.74% for the week.

– The KBW Bank Index lost 0.89% on Friday but gained 2.64% for the week.

On Friday, six of the 11 S&P sector SPDR ETFs closed out the session in the red. Technology (XLK) easily took the worst beating, followed by the discretionaries (XLY) and materials (XLB). The defensive sectors took the top four slots on the daily performance tables.

For the week, six of the 11 S&P sector SPDR ETFs finished in the green. Not surprisingly, energy (XLE) led the winners, followed by the defensives. Technology and the discretionaries were again the big losers.

Earnings

As of June 5, according to FactSet, for the second quarter, Wall Street now expects to see year-over-year earnings growth for the S&P 500 of 21.7%, up from 21.6% last week. Wall Street also sees revenue growth of 112%, flat from one week ago. For the second quarter, 47 S&P 500 companies have issued negative earnings guidance while 61 have issued positive guidance.

For the full year of 2026, the street now looks for earnings growth of 22.8%, up from 22.6% last week, and up from 14.7% more than two months ago. This would come on revenue growth of 10.8%, up from 10.7% last week and up from 7.7% a rough ten weeks ago. The outlook for the third quarter is also very positive. Third quarter S&P 500 earnings growth is now estimated at 25.1%,year over year.

At the moment, the energy and technology sectors are projected to have grown Q2 earnings an absolutely jaw-dropping 121.5% and 58.1% respectively. Just one sector, health care is currently projected to have suffered a Q2 earnings contraction (-7.7%).

Valuation

Still using data provided by FactSet, the S&P 500 ended last week trading at 21.1-times 12 months’ forward-looking earnings, down from 21.2-times last week, and down from 21.6-times about 10 weeks ago. This is still well above the five-year average of 19.9 times for the index as well as being well above its ten-year average of 19 times.

The S&P 500 also ended last week trading at 28.6 times trailing 12 months’ earnings, up from 28.5 times one week ago, and also above levels that the index reached more than two months back. This also stands well above the five-year (24.6 times) and ten-year (23.4 times) averages for the index.

Six of the 11 sectors are now trading at or above their five-year average valuations, led by the discretionaries (26.4 times). Five sectors closed out last week undervalued relative to or even with their five-year norms, up from just two sectors the week prior.

Fed Funds Futures

Fed Funds futures trading in Chicago are currently pricing in a 98% probability for no change to be made to the current target range (3.5% to 3.75) for the Fed Funds Rate at the next FOMC policy meeting on June 17. That’s down from 99% a week ago. As we know, Kevin Warsh is now running the central bank, but Jerome Powell still has a say, and probably some loyalists as well. There are no rate cuts fully priced in at any point in the future looking out towards year’s end 2027. That said, there is now a rate hike priced (74% probability) in as early as December 2026.

Economics

(All Times Eastern)

No significant domestic macroeconomic data-points scheduled for release.

The Fed

(All Times Eastern)

Fed Blackout Period.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: CPB (.48)

At the time of publication, Guilfoyle was long MU equity.