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The stock market traded with some quiet resolve on Monday in the face of the ongoing Israel-Iran conflict. It did so, supported in part by reports that Iran was working diplomatic channels to negotiate a ceasefire agreement with Israel. That resolve is being tested this morning following separate reports that have left market participants with the impression that there could soon be an escalation in the conflict.
Specifically, President Trump left the G7 Summit early and said in a Truth Social Post that everyone should leave Tehran immediately. ABC News later reported that the president requested his national security team be ready in the White House Situation Room today and that he told reporters that he wants a "real end" to Iran's nuclear program.
The Treasury market has garnered some safe-haven interest in the wake of these developments. The 2-yr note yield is down three basis points to 3.94%, and the 10-yr note yield is down six basis points to 4.40%.
The bulk of those moves came in front of the May Retail Sales Report, which was weaker than expected and generally weak in terms of discretionary spending activity. The market didn't react fully to that report, possibly because the import and export prices were firm in May and conveyed a year-over-year pickup, yet participants might simply be preoccupied with the geopolitical situation.
The equity futures look preoccupied with that situation. Currently, the S&P 500 futures are down 29 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 114 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 232 points and are trading 0.5% below fair value.
There wasn't much movement in the equity futures market following the release of the May Retail Sales Report, which, arguably, aided the case for a Fed rate cut. Notably, this is hard economic data that shows a pullback in discretionary spending activity that one sensed might be seen given the dour consumer sentiment survey data seen in recent months.
To be fair, more recent reports have shown an improvement in consumer sentiment that has followed the pause on the reciprocal tariffs and the massive stock market rally that ensued, so it is possible discretionary spending activity will improve in June, but for now, the market is mulling this current report against a backdrop of a nervous geopolitical scene.
That scene, and the uncertainty of what might be seen later in Iran, has buyers holding back their own firepower at the moment.
