What to watch in the week ahead

• The reopening of the Strait of Hormuz was called into question over the weekend, although traffic appears to have continued to flow. This week, investors will look for signs that talks can support more predictable shipping access. We believe broad commodity exposure can help portfolios manage the risk of renewed supply disruption.
• The Fed’s first meeting under Kevin Warsh delivered a more hawkish tone and pushed markets to price in more tightening. This week’s inflation data will test whether that repricing is justified. We recommend locking in attractive yields in quality short- and medium-duration bonds.
• US equity issuance is recovering sharply after a long quiet period. This week and beyond, investors will assess whether markets can absorb the rise in supply. We remain positive on global equities and recommend using recent strength to improve diversification and manage concentration risk.

Can US-Iran talks ensure a durable reopening of the Strait of Hormuz?

Events in the Middle East continued to move fast. A US-Iran memorandum of understanding had created a path toward reopening the Strait of Hormuz, sanctions relief for Iran, and 60 days of talks on a more durable settlement, including on Iran’s nuclear program. But the reopening was called into question over the weekend after renewed fighting between Israel and Hezbollah in Lebanon and Iranian statements suggesting restrictions had returned. US officials disputed that the Strait was closed and pointed to continued ship movements. The latest reports also suggest traffic has continued to flow, while talks appeared to take a more constructive turn on Sunday and into the start of the week.

This week, investors will look for signs that diplomacy can move from a fragile framework to more predictable implementation. Attention will focus on whether shipping continues to pass safely, whether permissions for transit are clarified, and whether the de-escalation process in Lebanon holds long enough to support the next phase of talks. Markets will also parse whether the reported roadmap, technical working groups, and communication channels are sufficient to reduce the risk of renewed disruption. Energy remains the clearest transmission channel. Stable traffic through the Strait would reduce concerns about a more sustained rise in oil prices, while renewed restrictions would risk feeding back into inflation expectations, central-bank pricing, and risk appetite.

Our base case is that diplomacy eventually allows markets to focus back on fundamentals, including resilient growth, strong earnings, and AI demand. Near-term geopolitical flare-ups are still likely to create volatility, and the path toward stable shipping remains uncertain. Investors should not treat the US-Iran process as eliminating energy risk. A durable reopening of the Strait would reduce the likelihood of a more sustained inflation impulse, but the process remains vulnerable to setbacks. We believe investors should consider broadening commodity exposure with active management. Energy exposure can help buffer portfolios against renewed supply disruptions, while broader commodity exposure offers a more balanced mix of return potential and diversification.

Will the Fed’s favorite inflation gauge add to hiking worries?

New Federal Reserve Chair Kevin Warsh gave markets plenty to digest at his debut policy meeting, including a more hawkish tone, a more streamlined communications approach, and the promise of broader changes to how the central bank operates. Although the Fed kept rates unchanged, the committee’s statement removed the earlier easing bias. Warsh noted that inflation had exceeded the Fed’s target for five years and described persistently high prices as a burden for households. And finally, the dot plot also shifted in a more hawkish direction, with roughly half of officials anticipating at least one rate increase before year-end. Markets responded accordingly, with 2-year yields rising and investors moving to fully price a rate hike at the October meeting.

This week, investors will be looking for indications of whether inflation data confirms the Fed’s more hawkish tone. The May personal consumption expenditures price index will be the key test, as the Jerome Powell era Fed’s preferred inflation gauge. Investors will focus especially on core inflation for evidence that price pressures are moderating despite earlier energy shocks. Finally, markets will be on the alert for clues regarding longer-term shifts in Fed policy—including on issues such as the central bank's balance sheet and proposals to update economic indicators—from Warsh's pick of staff for various task forces.

Our view is that the Fed pivot is not as hawkish as it first appears. A durable reopening of the Strait of Hormuz would reduce the risk of a sustained energy-driven acceleration in inflation, and the dot plot could begin to reflect this improved outlook in the coming meetings. Many of the more hawkish projections also appear to have come from non-voting officials. And the task-force process may make the Fed reluctant to move rates again until findings are released toward the end of the year. Our base case is that the Fed remains on hold for the rest of the year and resumes easing in early 2027. We think markets are pricing in too much tightening from the Fed and other major central banks. Against this backdrop, we recommend locking in attractive yields in quality short- and medium-duration bonds.

Can equity markets absorb record stock issuance?

US equity issuance is recovering sharply after a long quiet period. Initial public offering (IPO) issuance is on track to reach USD 200 billion to 350 billion this year, while secondary offerings could exceed USD 400 billion. In absolute dollar terms, both would be record highs. The pickup has attracted attention because it comes alongside high valuations in AI-linked stocks and renewed interest in public offerings from technology companies.

This week, and beyond, investors will be looking for further reassurance from indications that markets can cope with the rise in supply. Further details on planned technology public offerings, secondary sales, or share issuance to fund AI-related capital expenditure will provide the clearest test. Investors will likely look at pricing, demand, and aftermarket performance to assess whether buyers are still willing to support new issuance.

Our view is that the reopening of the issuance window should not prevent equities from moving higher. The scale of issuance needs to be judged against the size of the market. Relative to the roughly USD 72 trillion US equity market capitalization, estimated issuance is only slightly above the long-term average as a share of Russell 3000 free float market capitalization. Buybacks also remain an important offset. US companies have repurchased USD 1.2 trillion of shares over the past 12 months and repurchases are expected to remain around that level through the balance of the year. That means net equity supply could still shrink even as gross issuance rises

Meanwhile, we view the broader backdrop for stocks as positive, given strong earnings growth, continued AI capital expenditure, and resilient US activity. The recent strength of markets provides an opportunity for investors to improve the resilience of portfolios—including by seeking to mitigate the concentration risk arising from the increased weighting of top US tech stocks in benchmark indices. Diversification has become more important, both within AI and tech and beyond.