Author: Igor Kuchma

SpaceX shares closed 19% above their IPO price of $135 on the first day of trading, and the momentum continued into Monday’s pre-market session, with the stock gaining a further 5%. 

So, the skeptics who predicted the IPO would fail were wrong? 

Time will tell, but for now, the rally seems to be driven less by fundamentals and more by hype around the company and investors hoping to capitalize on the idea that SpaceX stock will soon be added to major indices. For instance, although the S&P 500 has stuck to its standard criteria, the Nasdaq has revised its index inclusion rules to speed up the process, which could end up forcing large passive funds to buy the stock.

At the same time, news that the United States and Iran may be close to reaching an agreement could have contributed to the momentum.

The problem with the latter is that reopening the Strait of Hormuz would not immediately lower global inflation. Moreover, parts of the proposed agreement may be difficult to implement, and even if a memorandum is signed, the U.S. and Iran would still need to agree on the nuclear program and other unresolved issues. Thus, a deal reached this week would not necessarily end the conflict.

As for SpaceX itself, even before the IPO, Morningstar assigned a fair value estimate of just $63 per share.

Today, SpaceX’s market capitalization exceeds that of Taiwan Semiconductor Manufacturing Company, despite the fact that, as of Q1 2026, TSMC reported earnings per share of $3.49 on revenue of $35.9 billion, surpassing analyst expectations, whereas SpaceX had $4.7 billion in revenue in the first quarter of 2026 but a net loss of $4.3 billion.

This does not necessarily mean the stock cannot continue rising in the short term; however, if the hype fades and investor sentiment shifts, the correction could be sharp, and if that occurs after the stock has been included in major indices, the consequences may extend beyond SpaceX itself.

By the end of last week, the Nasdaq plunged more than 4%, the S&P 500 lost 2.6%, and the Dow Jones fell 1.4%. Ironically, it was good news or, more precisely, the fact that the U.S. economy added 172,000 jobs, while payroll figures from previous months were revised upward, that triggered the sell-off, as it gives the Fed more room, if not to tighten monetary policy, at least to keep it unchanged for a longer period.

For instance, according to the CME FedWatch Tool, markets are now pricing in more than a 70% chance of another rate hike. No wonder gold is once again below $4,400.

Yet investors seem to have short memories. U.S. futures opened the new week higher despite rising tensions in the Middle East. Why?

On the geopolitical front, Trump’s Truth Social posts about progress in talks with Tehran appear to have reassured markets once again.

As for monetary policy concerns, attention seems to be shifting toward the upcoming SpaceX (SPCX) IPO, reportedly targeting up to $75 billion, making it one of the largest public offerings in history. The concern is that, despite generating more than $18.5 billion in revenue in 2025, SpaceX lost nearly $5 billion and is still targeting a valuation of roughly $1.77 trillion. The bet appears to be that SpaceX could become another meme stock like Tesla, growing regardless of fundamentals.

Now, if negotiations with Iran stall, if inflation remains stubbornly high, or if economic data continues to undermine hopes for Fed rate cuts, optimism around the SpaceX IPO could eventually turn into an “entire market trap,” as AI-linked companies already account for an outsized share of gains, leaving downside risks elevated. That risk could only increase further once OpenAI and Anthropic go public.

Legalities didn’t stop the U.S. campaign against Iran. Trump simply declared that a ceasefire between the two countries had been in place since April 7, 2026, effectively arguing that no Congressional authorization is needed to continue military operations.

Following the same logic, recent strikes on Iranian radar installations and drone command centers in Goruk and on Qeshm Island shouldn’t reset the clock simply by being justified as retaliation for Iran’s “aggressive actions,” including the downing of a U.S. MQ-1 drone over international waters.

What matters is that the Strait of Hormuz remains closed, and while investors celebrate record highs in the S&P 500 and Nasdaq, the economic costs of the conflict continue to accumulate.

Starting with inflation, headline PCE inflation accelerated to 3.8% year-over-year in April from 3.5% previously, while core PCE remained stuck at 3.3% — still far above the Federal Reserve’s 2% target. Thus, even with Kevin Warsh leading the Fed, hopes for meaningful rate cuts look increasingly misplaced.

Could the good news, then, be that the growth picture is also weakening, as the weaker the employment figures are this week, the stronger the case for eventual monetary easing in the name of preserving full employment becomes?

Under normal circumstances, yes. The problem now is that if the conflict drags on and the Strait of Hormuz remains blocked, oil prices could move dramatically higher. Strategic petroleum reserves are finite, spare production capacity is limited, and there is still no realistic substitute for oil at the scale required by the global economy.

Should that happen, inflationary pressures could intensify further, forcing regulators to raise interest rates — something financial markets would find much harder to ignore. And with reports that Iran has suspended talks with the U.S. amid the escalation of hostilities in Lebanon, this no longer appears to be an unlikely scenario.

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. 

Last week’s U.S. macroeconomic data was, to say the least, disappointing for the markets, though not yet for the S&P 500 or Nasdaq. As now-former Federal Reserve Chair Jerome Powell warned, the conflict in the Middle East, or more precisely the resulting rise in oil prices, is driving inflation.

CPI rose 0.6% from the previous month, in line with expectations, while core inflation increased 0.4%, above the projected 0.3%. On an annual basis, the CPI stood at 3.8% versus the expected 3.7%, while core inflation reached 2.8%, slightly above the forecast of 2.7%.

Producer inflation was even worse. The PPI surged 6% year-over-year versus expectations of 4.8%, while monthly growth stood at 1.4%, well above the forecast of 0.5%. Core PPI also surprised on the upside, rising 5.2% year-over-year versus the expected 4.3%, and 1% month-over-month versus forecasts of 0.3%.

At this point, hopes that the Fed will cut rates this year basically vanished. More than that, CME FedWatch now shows around a 40% chance of another rate hike. 

Against this backdrop, the bond market came under pressure toward the end of the week. Yields on U.S. Treasuries rose to their highest level in a year, while German Bund yields reached levels not seen since 2011. In the UK, political developments may also have contributed to the pressure.

Still, calling this a full-blown debt crisis might be premature, as tensions in the Middle East ease, inflationary pressures could ease, and markets could stabilize quickly. 

The problem is that, despite optimistic posts on Truth Social, the situation around the Strait of Hormuz has hardly improved; if anything, it has worsened, with Trump threatening to “annihilate” the country, while Israel openly states that the operation is far from over.

Both the S&P 500 and the Nasdaq closed at new all-time highs last week, driven by three main factors, none of which, however, is as clearly bullish as the headlines suggest.

Starting with the labor market surprising on the upside, unemployment indeed remained at 4.3%, and the economy added 115,000 jobs, well above forecasts of 65,000, though these numbers could still be revised later. Even if they are not, with inflation still a concern, this gives the Fed another reason to hold off on cutting rates. Swapping Jerome Powell for Kevin Warsh would probably not change much.

As for a federal court ruling overturning Trump’s 10% tariffs, which had been introduced to replace earlier measures deemed illegal, this does not eliminate the trade war. Even if it becomes harder for Trump to impose tariffs unilaterally, his team will likely continue seeking alternative ways to do so. Thus, it is too early to claim that one of the key inflationary risks is going away anytime soon.

Finally, the main driver of sentiment this week was hope for a breakthrough in peace talks between the U.S. and Iran. Oil prices fell sharply after reports that both sides were discussing a one-page memorandum that could include a ceasefire, the gradual reopening of the Strait of Hormuz, and further negotiations over Iran’s nuclear program.

In practice, however, Trump rejected Iran’s proposal, calling it “unacceptable,” while the Iranian Foreign Ministry accused the U.S. of continuing to make “unfounded demands.” Meanwhile, Israeli Prime Minister Benjamin Netanyahu stated on Sunday that the war with Iran “is not over,” as both the U.S. and Israel continue to try to curb Tehran’s nuclear ambitions. 

So, does this mean a market crash is inevitable?

The conditions are certainly there, but investors are staying optimistic over the longer term. They believe that sooner or later these geopolitical risks will fade, fueling dip-buying.

Now, the longer these risks persist, the greater the potential damage to the U.S. economy, and eventually markets will no longer be able to ignore that reality.

Continuing the saying, “Fool me once, shame on you; fool me twice, shame on me,” fool me three times and I should be an investor.

As expected, the two-month deadline limiting the U.S. president’s ability to take military action without congressional approval has expired without the conflict coming any closer to an end. In a letter to congressional leaders, Trump argued that he is not subject to the War Powers Act, claiming that last month’s ceasefire with Iran “stopped the clock” on any such obligation. To be fair, historically, other presidents have also found ways to extend military interventions beyond that limit.

Either way, the markets, judging by the rise in the S&P 500 and the Nasdaq, do not seem particularly concerned, betting on another “TACO” or a verbal intervention from the U.S. president.

And they didn’t have to wait long. On Sunday, Trump said that a U.S. operation to ensure the safe passage of ships through the Strait of Hormuz would begin on Monday, adding that negotiations with Iran were progressing positively.

The only issue is that, at the same time, Washington rejected Iran’s proposal to end the conflict in three phases, and, on top of that, reports emerged on Monday that Iran had attacked a U.S. vessel attempting to pass through the Strait of Hormuz after ignoring warnings.

Although the U.S. has denied those claims, the two sides are still a long way from any real agreement, despite the optimistic rhetoric on Truth Social.

For the global economy, this kind of uncertainty is far from benign. While central banks are not rushing to raise interest rates in response to inflation risks, they are preparing for that possibility. Even within the Federal Reserve, as Powell noted, a growing number of members are uncomfortable with maintaining a “more accommodative” stance.

This Friday marks two months since the U.S., together with Israel, launched its operation against Iran. And while there are signs of de-escalation on paper, in reality, nothing has really improved: the U.S. is still building up its military presence, and Iran is in no hurry to reopen the Strait of Hormuz.

Still, for four straight weeks, the S&P 500 and Nasdaq have closed higher, with both hitting fresh all-time highs last week. Why?

First, they are counting on another “TACO” from the U.S. president. The thing is, unless ships start passing through openly, the negative effects will continue to build, including higher inflation and weaker growth, as the energy crisis persists and shortages of key materials like fertilizers, aluminum, and helium persist.

Second, the U.S. earnings season is helping keep markets afloat. According to FactSet, with 28% of S&P 500 companies reporting, 84% have beaten EPS expectations, and 81% have topped revenue forecasts. Last week’s standout was Intel, surging over 20% on better-than-expected results and strong guidance.

Microsoft, Amazon, Alphabet, and Meta aren’t expected to disappoint this week either, and given their combined market capitalization of over $11 trillion, they are likely to set the tone for the market as a whole. The point is that even solid earnings won’t be enough on their own. Investors will be looking for clear signs that the massive spending on AI and data centers is translating into real profits.

Looking beyond that, even if Big Tech delivers, it will be hard for the market to move higher without positive geopolitical news. If, in turn, strong earnings are also matched with good news on that front, the market could move higher, not just in equities, but also in precious metals and cryptos.

Last week’s talks between Iran and the U.S. didn’t seem to get very far. U.S. Vice President J.D. Vance said the two sides failed to reach an agreement due to major disagreements on several key issues. Donald Trump later added that Washington and Tehran still couldn’t find common ground on Iran’s nuclear program, adding that the U.S. would begin a naval blockade of Iran.

And yet, the S&P 500, Nasdaq, and Dow Jones all opened the week in the green, cryptocurrencies followed suit, and Brent crude actually slipped lower.

It looks like investors are once again pricing in another “TACO”. And to be fair, comments about “significant progress” in negotiations do point in that direction. The only thing is that passage through the Strait of Hormuz remains quite risky, to say the least.

Now, if instead of stabilization we see escalation, it could mean a loss of around 2–4 million barrels per day from the global oil market, worsening the ongoing energy squeeze. In a worst-case scenario, if Iran moves to disrupt the Red Sea and targets regional infrastructure, things could deteriorate even further.

Another risk is deteriorating U.S.–China relations. Trump has threatened 50% tariffs on China if it supports Iran, and China’s Foreign Ministry has responded, saying Beijing would take “decisive measures” in such a case. 

What’s next?

According to Reuters sources, negotiating teams from the U.S. and Iran could meet again in Islamabad later this week. But given how wide the gap still is between their positions, the chances of a breakthrough remain low. For now, though, markets seem content that dialogue is at least continuing.

That said, the longer this rollercoaster drags on, the more negative the implications for the global economy are likely to be, and eventually, for markets as well.

Verbal and written interventions continue. After the U.S. president, in a peculiar way, threatened to bomb bridges and power plants in Iran if the Strait of Hormuz isn’t reopened, media reported on Monday that the sides are close to a 45-day ceasefire and that the trade route could soon reopen.

Still, gains on S&P 500, Nasdaq, and Dow Jones futures were modest, not only because Tehran talks down the optimism — stating it will not accept ultimatums or pressure and that reopening the Strait of Hormuz in exchange for a “temporary ceasefire” is off the table — but also because the facts suggest the same.

In particular, vessel traffic through the strait remains well below prewar levels and is restricted to ships considered friendly to the Iranian regime. For the same reason, oil prices aren’t falling, and Japan is preparing high-level talks with Iran, pointing to the possibility of a more prolonged energy crisis.

If the conflict drags on, Asian countries with limited energy reserves, such as Australia, India, and Indonesia, would be among the most vulnerable. Some are already implementing emergency measures to prioritize fuel use in essential sectors, while price controls and subsidies are being used to mitigate the impact on consumers.

As for Europe, while reserves are relatively comfortable for now, they could eventually be depleted, which would weigh on the region’s economy.

Now, if the situation escalates further, particularly with the start of a ground operation, Iran could respond by targeting energy infrastructure in Saudi Arabia, Kuwait, or the UAE. There is also the risk that the Houthis might attempt to disrupt traffic through the Bab el-Mandeb Strait using drone attacks on vessels.

This would put more pressure on energy prices and push up inflation, forcing central banks to tighten policy and hurting the wider economy.