What Not to Miss Amid the Unfolding Events in Iran

By Larry Benedict, editor, Trading With Larry Benedict

Last week was one of the most unusual weeks I can remember…

The backdrop? A Federal Reserve meeting… the Juneteenth holiday… and a quad-witching day all in the same week.

Yet the market barely budged at all.

Quad witchings typically see extra volume sweep through the market, as large institutions look to square off their positions before Friday’s expiry. That can cause some massive price swings.

But even with markets closed for the holiday, we didn’t see pent-up pressure translate to the price action.

Friday’s S&P 500 close was a mere nine-point move from the previous week’s close. That’s 0.15%.

But stocks remain priced for perfection. Plus, we saw dramatic events in the Middle East over the weekend with President Trump’s decision to bomb Iran.

So I’m worried that investors are still way too complacent…

No Rate Change

At the Fed’s meeting last week, it left interest rates unchanged at 4.25-4.5%. The market expected that.

But the hawkish tone from Fed Chair Jerome Powell caught everyone off guard. He said the Fed’s priority is keeping on top of inflation… even if it comes at the expense of growth.

He is concerned about the impact of tariffs – something the market has seemingly forgotten about. But he’s also wary about the inflationary pressures of President Trump’s other policies.

Consider the “big, beautiful bill” currently working its way through the Senate. It combines a big-spending agenda along with a range of tax cuts. This will further widen the U.S.’s budget deficit and add to the national debt over the next decade.

Plus, inflation can take three to six months to start showing up in the official data. The Fed has already acknowledged this lag effect.

So I’m not expecting any rate cuts until the last quarter of the year at best. (The Fed’s projections have two 0.25% cuts later this year, followed by just one 0.25% cut each in 2026 and 2027.)

Meanwhile, other projections point to an uptick in unemployment as economic growth slows.

These factors are going to eventually cause headwinds for the market…

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Big Headlines

Events in the Middle East over the weekend will dominate the headlines this week. And, of course, we’ll see speculation about how things could play out from here.

We could see the Strait of Hormuz get blocked or retaliatory strikes on U.S. bases worldwide. Perhaps things could even start to quiet down.

But even as conflict the Middle East scales up, we need to look beyond the news headlines… and keep one eye firmly focused on the economy.

I don’t want to sound overly bearish. I’m not expecting a market crash (though a correction could be in the cards).

But after the market’s rapid and almost miraculous recovery from the April lows, investors have again become way too accustomed to the status quo.

They need to remind themselves that sentiment can turn on a dime.

So as I always caution, know your exits, and keep your position sizes rational. In these kinds of markets, you need to focus on risk management.

That’s what will keep you in the game over the long term.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict