Two steps forward, one step back seems to be the dance between the U.S. and Iran over peace talks -- the market's main focus right now. But investors should think about the bigger picture of inflation this week.

Hopes were raised over the weekend that an agreement was close, only to be faced with a flare-up of tensions at the start of the week. The U.S. sank two Iranian ships while Tehran launched missiles at American planes. Oil prices were on the rise early Tuesday, although they remained below where they ended last week.

Stock markets seem convinced a peace deal will be reached. But investors should be cautious. The main economic consequence of the war has been higher energy prices and therefore inflation, and indicators suggest prices will continue to rise even after an agreement.

Iran plans to reopen the Strait of Hormuz 30 days after a peace deal is reached, according to a report from Nikkei. But that means the waterway -- which normally carries around 20% of the world's oil traffic -- is unlikely to be fully open before July at the earliest. Meanwhile, Middle-Eastern oil executives say it will take months for production to return to normal levels. All the time, the world's oil deficit -- the crude that would normally be produced and shipped which has been lost to the conflict -- is mounting.

The effects are likely to be seen in Thursday's release of the personal consumption expenditures price index for April. Economists forecast a 3.8% year-over-year increase in the PCE, which is the Federal Reserve's favored gauge of inflation. That would likely bolster the case for raising interest rates, with Fed governor Christopher Waller warning Friday that rate hikes can't be ruled out if oil prices stay high.

Washington and Tehran might eventually come to terms. But the announcement of peace won't end the threat of inflation triggered by the conflict.

-- Adam Clark

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Nvidia's Huang Has a Plan to Get Its Stock Moving Again

Nvidia's CEO Jensen Huang is changing the chip maker's reporting style to bat back a bearish narrative. It's going to separately report the data center sales for a handful of companies known as hyperscalers, such as Microsoft and Amazon. The goal is to highlight a more diverse revenue base.

   -- The hope is also to convince investors that Nvidia doesn't need its 
      largest customers to keep their capital expenditures growing at 
      extraordinary rates for Nvidia to keep its even more extraordinary 
      momentum. Analysts peppered Nvidia management about the change in 
      reporting last week. 
 
   -- If Nvidia was hoping the new segments would boost its stock, it isn't 
      working yet. That may be because the nine quarters of data Nvidia 
      released don't back Huang's argument. Under the new reporting, 
      first-quarter revenue from hyperscalers rose 115% from last year, while 
      sales to smaller customers rose 74%. 
 
   -- Nvidia is returning to a successful playbook. In May 2024, it started 
      training investors to focus on more than just sales of its graphics 
      processing unit chips, the workhorses of the AI boom. Nvidia split the 
      data center sales line between compute chips, including GPUs and CPUs, 
      and networking chips. 
 
   -- Networking sales started out modest, but by last year they rose by 142%, 
      to $31 billion, which made Nvidia the world's biggest data center 
      networking-chip company. It took two years, but Huang made his point: 
      Nvidia not only dominates computing in the AI data center, but in 
      networking, too. 

What's Next: For Nvidia's longest fans, the new segments carry a more significant message. After all, Nvidia was built originally on sales to gaming platforms. The new reporting lumps Nvidia's gaming chips in with chips for cars, robots, video, and scientific workstations, representing about 8% of first-quarter sales.

-- Adam Levine

Consumer Sentiment Hovers Near Five-Year Lows Despite Stock Rally

Consumer sentiment remains near five-year lows despite a rally in stocks that led the Dow Jones Industrial Average to a new high last week. This week, investors will get more inflation data that is expected to show the fastest rise in prices since 2023, fueled by soaring energy prices.

   -- Thursday's personal consumption expenditures price index for April is 
      expected to show a 3.8% increase from a year ago, three-tenths of a 
      percentage point more than in March. The core PCE price index, which 
      excludes volatile food and energy prices, is expected to rise 3.3%. 
 
   -- Gallup's Economic Confidence Index fell to a negative 45 in May from a 
      negative 38 in April, the lowest reading since October 2022, as rising 
      fuel costs pressure household spending. Gasoline right now is $4.51 a 
      gallon, up from $3.19 a gallon a year ago, according to AAA. 
 
   -- Summer hiring for teenagers is expected to be at the lowest level since 
      1948, according to Challenger Gray & Christmas, amid rising inflation, 
      rising oil prices, and cautious hiring by companies. This is on top of 
      last year's record weakness for teen hiring, the outplacement and 
      executive coaching firm said. 
 
   -- Kevin Hassett, a top White House economic advisor, said fuel prices are 
      expected to drop just as soon as an agreement to end the Iran conflict 
      leads to the reopening of tanker traffic in the Strait of Hormuz. 
      Administration officials said Sunday that such an agreement is getting 
      closer. 

What's Next: That could set up the Federal Reserve to resume lowering interest rates, Hassett told Fox News on Sunday. Lower energy prices will put it in a position to "do the right thing" and cut rates, he said, though he emphasized new chair Kevin Warsh should act independently.

-- Liz Moyer and Dan Lam

Ferrari Underwhelms With Electric Car Reveal

Ferrari is going electric, and that's a worry for Wall Street. The Italian supercar maker failed to win over investors when it launched its first-ever electric vehicle at an event in Rome.

   -- The EV is named the Luce, after the Italian word for light. Former Apple 
      chief design officer Jony Ive helped create the car, which Ferrari said 
      would sell for a starting price of 550,000 euros ($640,000). 
 
   -- Social-media users panned the new EV, which bears little resemblance to 
      some of Ferrari's best-known supercars. Still, the car can accelerate 
      from 0 to 60 miles per hour in less than 2.5 seconds and has a top speed 
      of more than 190 mph, the company said. 
 
   -- The Luce features a built-in system that amplifies the sounds of the 
      electric engine in a bid to mimic the roar of a traditional supercar. 
      Ferrari collector Luc Poirier told Barron's last year that the technology 
      felt "almost like a gimmick." 
 
   -- Investors weren't impressed at all by the Luce, and the Prancing Horse's 
      Milan-listed shares tumbled in early trading on Tuesday. The stock was 
      already down 27% over the 12 months through Friday's close. 

What's Next: There's a lot riding on whether the EV can win over Ferrari enthusiasts. The company scaled back its previous guidance about electrification at a Capital Markets Day in October, but still expects 20% of its lineup to be electric by 2030.

-- George Glover

U.S. Needs $2 Trillion for Its 'Made in America' Push: Report

Revitalizing U.S. manufacturing and bringing home critical supply chains is a priority for the Trump administration, but a new report from McKinsey Global Institute says the U.S. needs at least $2 trillion for such a task, not just in capital but in skilled labor and infrastructure.

   -- The U.S. has worked to improve its access to critical goods and increase 
      domestic production of them to cut reliance on imports. The report's 
      findings highlight that it's no quick fix. The rivalry with China and war 
      in Iran illustrate how reliance on one area can create pain points. 
 
   -- America's dependence on China for these critical goods offered a glimpse 
      into a bigger problem. The U.S. imports about $3 trillion of manufactured 
      goods each year, and McKinsey classifies about a quarter, or about $750 
      billion, of those as the country's "Achilles' heel." 
 
   -- This includes advanced chips, some active pharmaceutical ingredients 
      needed for antibiotics, and high-capacity batteries critical for 
      transportation and defense systems. About 5% of imports, or $140 billion, 
      are vulnerable to all three risks, including smartphones, laptops, and 
      rare-earth magnets, McKinsey says. 
 
   -- Looking at the extra production needed to meet domestic demand for the 
      products we import, if all U.S. factories ran at the peak utilization 
      levels of the last decade, it would generate an additional $650 billion 
      of output -- but most of that wouldn't resolve the "Achilles' heel" areas, 
      McKinsey found. 

What's Next: McKinsey estimates that U.S. manufacturing would need to double on average to fully meet domestic demand, and $2 trillion -- roughly 6% of the overall economy -- would be needed to transform the industrial base, not including trained workers and energy infrastructure. So far, much of the spending is on AI infrastructure.

-- Reshma Kapadia

Disney's Latest Star Wars Flick Tops Holiday Box Office Sales

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