By Martin Baccardax

The fastest inflation reading in three years should hardly be a reason for relief. Yet investors are clinging to signs that price pressures may be stabilizing as markets navigate rising oil prices, Middle East tensions, and growing concerns about the Federal Reserve's next move.

The S&P 500 is still in negative territory for the month, having slumped hard last week after a stronger than expected jobs report that stoked concerns about a Federal Reserve rate hike and tore nearly 200 points from the benchmark by the end of the trading session.

But Wednesday's inflation report, which showed the fastest headline price gains since 2023 and a core reading closing in on 3%, is oddly providing some stability to markets amid escalating tensions in the Gulf and a crucial SpaceX listing later in the week.

"Since Friday's jobs report, there's been a palpable jitteriness among investors worried about the Fed's next move," said Bret Kenwell, U.S. investment analyst at eToro. "Investors had also been banking on a quick peace deal in the Middle East, but that outcome continues to elude world leaders as confidence in the ongoing truce ebbs and flows with each headline."

"The trouble is, the longer it takes to find a resolution, the more likely oil prices remain elevated," he added. "And the longer energy prices stay elevated; the stickier inflation can get."

Last week's hotter than expected jobs report, which included the strongest three-month hiring gains in more than a year, stoked bets on a Fed rate hike and pushed the whole of the Treasury bond curve higher into the final month of the quarter.

The CME Group's FedWatch tool, meanwhile, brought forward its bets on a Fed hike to October, where the odds are trading at around 50/50, with the odds of a September increase rising to around 33%.

The market's benchmark volatility gauge is starting to flash red, as well, following two months of dormant readings tied to the long surge in tech stocks.

The VIX index now seems parked north of the 20-point mark, a key level of volatility for Wall Street that signals daily swings of around 97, or 1.3%, for the S&P 500 over the next month .

That's a big change from late May, when tech stocks were leading a historic run of market gains, with both the S&P 500 and the Nasdaq printing daily all-time highs, thanks in part to artificial intelligence optimism and a storming first quarter earnings season.

Renewed Gulf tension, however, the prospect of faster inflation and bets on a Fed response are starting to erode that outlook. And the looming SpaceX IPO, as well as planned listings from AI peers OpenAI and Anthropic, will require around $300 billion of stock sales to make room for the new market entrants.

David Miller, CIO and senior portfolio manager at Catalyst Funds, thinks a good portion of the June slump is tied to investors questioning the levels they're being asked to pay for AI and tech stocks as the interest rate backdrop continues to inch higher.

He's still largely bullish, citing solid earnings prospects, resilient consumer spending and reasonably modest credit spreads, but isn't ready to take his eye off the screen just yet.

"I am watching closely to see whether the selloff remains concentrated in the most richly valued areas of the market or begins to spill over into economically sensitive sectors," he said.

That's a key point to make when markets are seeing index level losses despite some flight to quality trading. Tuesday's selloff, for example, saw 396 gainers in the S&P 500, compared to 131 stocks in decline.

"In a way, this proves that investors who have been raising worries about how concentrated the market's gains may have been right all along, " said Fundstrat's economic strategist Hardika Singh.

An equal-weighted index of the benchmark, in fact, has outpaced its market cap-weighted rival by around 2.5% over the past month, reversing a trend that has seen the megacap tech stocks pace index gains for much of the past three years.

That sets up stocks for a nervous summer run, with investors digesting a host of new listings, a simmering truce in the Gulf region, sustained inflation pressures and a job market that may or may not hold gains into the autumn.

"The Summer Swoon has arrived, which means volatility will be with us for the near-term," said Nancy Tengler, CEO of Laffer Tengler Investments.

Still, she's confident in a longer-term rebound.

"There is plenty to worry about and we are watching," she said. "But we continue to believe the new emerging technologies will change the way we live for years to come. Those are the things bull markets are made of."

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 10, 2026 13:42 ET (17:42 GMT)

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