INFLATION COOLS, EARNINGS IMPRESS,
BUT OIL RISKS LINGER
JUL 2026
The second half of 2026 opened with markets balancing three competing forces: renewed U.S.-Iran hostilities, the first meaningful inflation relief in months, and the start of second-quarter earnings season. Stocks entered July with considerable momentum after the S&P 500 and Nasdaq Composite posted their strongest quarters since 2020, and the Dow Jones Industrial Average notched back-to-back record closes in the opening days of the month. That optimism was quickly tested when the June ceasefire between the U.S. and Iran unraveled, reviving the energy shock that had pushed inflation higher through the spring. By mid-July, however, cooler inflation data and strong early earnings results had helped move the major indexes back to within roughly 0.5% of their records.
The renewed hostilities rippled first through energy markets. Brent crude oil, which had retreated sharply toward pre-war levels after the June ceasefire, initially climbed above $76 a barrel following fresh strikes and later approached $85 as the conflict intensified. The Strait of Hormuz remains a critical risk because it handles oil flows equivalent to roughly 20% of the world’s oil supply. Sector leadership also shifted with the headlines. Semiconductor shares remained volatile as investors weighed profit-taking against still-robust demand tied to artificial intelligence, while energy and financial shares found support. Financial shares benefited from strong bank earnings, fueled by record trading and investment-banking revenue. FactSet estimates that S&P 500 earnings will grow roughly 23% from a year earlier in the second quarter, a pace that would provide important support for elevated stock valuations¹.
The economic calendar reinforced the shifting narrative. The June jobs report showed employers adding just 57,000 jobs, well below the 115,000 consensus, while revisions removed 174,000 jobs from April and May². The unemployment rate edged down to 4.2% from 4.3% in May, partly because labor force participation fell to 61.5%, its lowest since March 2021². Inflation brought more encouraging news. The Consumer Price Index (CPI) fell 0.4% in June, its largest monthly decline since April 2020, as energy prices dropped 5.7%³. Annual inflation slowed to 3.5% from 4.2% in May, below the 3.8% consensus forecast³. Core CPI, which excludes food and energy, was unchanged for the month and eased to 2.6% from a year earlier³. The Producer Price Index (PPI) declined 0.3% in June, trimming the odds that the Federal Reserve will need to raise interest rates at its July 28-29 meeting⁴.
The Bottom Line
The coming weeks will test whether that relief holds. Earnings season will broaden beyond the banks, the Fed will meet at month-end, and the path of the Iran conflict will help determine whether June’s energy-driven disinflation extends into the summer or proves to be a one-month reprieve. For now, resilient corporate earnings are giving investors some reason to look through the geopolitical uncertainty, but the renewed rise in oil prices means inflation risks have not fully faded.
- FactSet, S&P 500 Likely to Report Earnings Growth Above 29% for Q2
- Bureau of Labor Statistics, Employment Situation Summary – 2026 M06 Results
- Bureau of Labor Statistics, Consumer Price Index Summary – 2026 M06 Results
- Bureau of Labor Statistics, Producer Price Index News Release summary – 2026 M06 Results
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