Futures on the Dow Jones, Nasdaq, and S&P 500 opened the week in the green, while oil prices slipped on hopes that Washington and Tehran may finally reach an agreement after Trump said, “the final aspects of the deal are being discussed and will be announced shortly.”
Although Iran’s Foreign Ministry spokesperson, echoing some of the U.S. president’s rhetoric, noted a “trend toward rapprochement,” he stressed that this does not necessarily mean both sides will reach an agreement on the key issues.
In particular, the draft reportedly requires Tehran to permanently abandon its nuclear weapons program and dismantle all enriched uranium stockpiles, conditions Iran has previously rejected. There is also still little clarity on how control and security in the Strait of Hormuz would be managed.
If talks fail again, bond yields could rise, and stocks may turn more nervous as prolonged uncertainty around the Strait of Hormuz adds pressure to the economy through higher oil prices.
Meanwhile, inflation expectations continue to drift higher, with the one-year measure rising from 4.7% to 4.8% and the long-term gauge climbing from 3.5% to 3.9%, largely driven by independent and Republican voters.
At the same time, consumer confidence in the U.S. continues to deteriorate. According to the University of Michigan, the consumer sentiment index fell to 44.8 in May, another record low. Assessments of current conditions dropped from 52.5 to 45.8, while the expectations index declined from 48.1 to 44.1, reaching historically depressed levels for the first time since 1973.
Markets are not yet pricing in that risk, but weaker consumer demand could eventually weigh on corporate profits. At the same time, the minutes from the latest Federal Reserve meeting showed that a rate hike may be necessary if inflation remains above the 2% target.
Now, even if an agreement is signed, it would likely be temporary rather than a full resolution to the broader conflict, so any rally could also be short-lived.
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