The stock market continues to bet on some sort of a resolution to the war with Iran, but there are no shortages of other risks heading into a new month. Stocks ended the month of May at all-time highs, continuing their rebound off the March lows on growing confidence that the Strait of Hormuz will reopen soon. This week gave some hint into what a response to a resolution would be like, as bond yields declined, oil prices retreated and the major stock averages rallied on hopes the Trump administration is nearing a peace deal. The Nasdaq Composite was up more than 8% since the end of April. President Trump’s nuclear demands remain a key sticking point for any agreement. On Friday, the president said that Iran “must agree that they will never have a Nuclear Weapon,” and said he was convening in the Situation Room to deliberate a “final determination.” But the unpopularity of the U.S.-Iran war and higher gasoline prices at the pump, especially in a critical midterm election year, have investors confident the conflict will soon wrap up. “The most important thing is to get the Strait of Hormuz open, from a world economy point of view, and we kick the can down the road on nuclear,” said Rhys Williams, investment chief at Wayve Capital Management. “That’s the deal that I think is out there.” AI driving force If bond yields continue to come off their highs and oil pulls back, there’s little else besides the war giving stock investors pause. Artificial intelligence remains the key driving force for the market, which posted a massive surge in profits in the first quarter from just about every corner — beyond just the Magnificent Seven companies. S & P 500 earnings are expected to post a blended growth rate of more than 28% in the first quarter, the fastest pace since the fourth quarter of 2021, according to FactSet data. Information technology stocks alone are set to record a blended growth rate of more than 54%. Snowflake ‘s earnings this week were the latest to reassure investors that AI is worth the investment. The cloud-based data platform issued a fiscal second-quarter adjusted operating margin outlook that was stronger than the Street was expecting, easing concern that AI will replace software companies and helping to lift other enterprise software stocks. That served to expand the AI rally this week beyond semiconductors alone. Next week will bring earnings results from other software companies, including CrowdStrike Holdings, and Palo Alto Networks . Chip giant Broadcom is also set to report. Faltering consumer Next week’s nonfarm payrolls report for May will reveal the state of the labor market, and how much of an impact AI is having on jobs at a time of elevated inflation. Economists expect the economy to have added 100,000 jobs in May, down from 115,000 in April, according to FactSet. The unemployment rate is expect to remain steady at 4.3%. Outside of a major surprise, the market is likely to take the number in stride, as investors adapt to a “low hire, low fire” environment. But Gregory Daco, chief economist at EY-Parthenon, expects that wage growth could come under pressure, constraining future consumer spending. Much of what happens with consumer spending could come down again to the length of the war with Iran, and what happens to oil — and gasoline — prices. The April personal consumption expenditures price index reported this week showed a drop in Americans’ savings rate, which could mean less of a buffer to absorb future shocks. Seasonally, there are other challenges for stocks. June is the worst month for stocks in a midterm election year, and investors largely expect that the market could be due for a period of short-term consolidation. “The real bet you got to make here is that we’re coming to a resolution here, slowly but surely, on Iran, and it happens in the next two, three weeks,” Wayve Capital’s Williams said. “I really don’t think we could be talking about the Strait of Hormuz being closed in October, and not have a market reaction.” Week ahead calendar All times ET. Monday, June 1 9:45 a.m. S & P Global PMI Manufacturing final (May) 10:00 a.m. Construction Spending (April) 10:00 a.m. ISM Manufacturing (May) Earnings: Hewlett Packard Enterprise Tuesday, June 2 10:00 a.m. JOLTS Job Openings (April) Earnings: Ulta Beauty , Palo Alto Networks , Dollar General Wednesday, June 3 8:15 a.m. ADP Employment Survey (May) 9:45 a.m. S & P Global PMI Services final (May) 10:00 a.m. Durable Orders final (April) 10:00 a.m. Factory Orders (April) 10:00 a.m. ISM Services (May) Earnings: Broadcom , CrowdStrike , Veeva Systems Thursday, June 4 8:30 a.m. Initial Claims (05/30) 8:30 a.m. Unit Labor Costs (Q1) 8:30 a.m. Productivity final (Q1) Earnings: The Cooper Cos. , Brown-Forman , Fastenal Friday, June 5 8:30 a.m. Hourly Earnings preliminary (May) 8:30 a.m. Average Workweek preliminary (May) 8:30 a.m. Manufacturing Payrolls (May) 8:30 a.m. Nonfarm Payrolls (May) 8:30 a.m. Private Nonfarm Payrolls (May) 8:30 a.m. Unemployment Rate (May) 8:30 a.m. Consumer Credit (April)
