Wall Street is celebrating peace headlines, falling oil, and a historic IPO—but upstream inflation is already moving through earnings.
KEY TAKEAWAYS
Wall Street is celebrating a powerful trifecta: a New York sports comeback, a historic SpaceX IPO, and a potential US-Iran peace framework. The market’s first read is lower oil, lower inflation, and renewed risk appetite.
The peace framework is genuinely positive, especially if it helps reopen the Strait of Hormuz and ease energy pressure. But the agreement appears narrow, with mine-clearing, passage fees, and unresolved nuclear negotiations still ahead.
The market may be ignoring the cost wave already embedded in the economy. Stage 1 Intermediate Demand prices rose 12.3% year over year in May, the largest increase since June 2022.
Upstream inflation does not disappear just because geopolitics improves. Contracts, inventories, freight costs, and input prices from March, April, and May are already moving toward Q2 earnings.
The peace rally is sentiment-driven, while earnings season will be arithmetic-driven. The key risk is that investors chase positive headlines before companies reveal the margin impact.
MY HOT TAKES
Peace is bullish, but not retroactive. Lower future oil prices do not erase the costs companies already absorbed.
The market is treating the headline like a reset button. The data suggests it is more like a pause button.
Stage 1 inflation is the number investors should be watching. It is the quiet signal hiding behind the louder geopolitical relief rally.
The Fed cannot ignore a 6.5% PPI print just because oil futures dropped overnight. Sticky upstream inflation still matters.
There is opportunity in the market, but FOMO is not a strategy. Positive emotion is useful for parades, not portfolio construction.
You can quote me: ““Relief rallies and economic reality are not the same thing. One is an emotion. The other is arithmetic.”
The best of times. Wall Street is primed for the celebration. In case you haven’t heard, the New York Knicks took the NBA title this weekend–it was the first since the early 1970s. There have been ups and downs over the years, but New Yorkers are always hopeful, and this year that hope was finally answered. What does that have to do with Wall Street? Well, if you have ever walked through New York City's financial district, you would likely have noticed a series of plaques on the sidewalks flanking Broadway. Folks, it is what we have been calling the Canyon of Heroes for a long, long time. It begins at the intersection of Wall Street and Broadway, where, incidentally, you could find the iconic Trinity Church where Alexander Hamilton–the first American central banker–is buried. The Canyon is where the countless, famous ticker tape parades took place in the days of yore. You have surely seen the black and white film footage of ticker tapes flying through the air so thick that one could barely see in front of them.
The Knicks are not the only party on Wall Street this week. Last Friday’s successful SpaceX IPO can certainly qualify as a Wall Street celebration. If ticker tape still existed, there would certainly have been plenty of it sacrificed last week as the market celebrated the largest IPO in history.
Imagine an iconic New York comeback for New York’s home team and a mega IPO that launched SpaceX right into the trillion dollar club ($2.1 trillion to be exact). If that weren’t enough, the President celebrated his 80th birthday this weekend by hosting a fight on the lawn of the White House in true Teddy Roosevelt form. As part of that celebration, we learned that a peace deal had been struck between the US and Iran, which is likely to be signed this upcoming Friday (at least according to the latest headlines).
That agreement which would ultimately open back up the Strait of Hormuz, allowing the badly-damaged energy shipping supply chain to come back to life. That is great news and truly represents some promise for all the world, struggling right now, to absorb the high cost of energy. Markets this early morning are pointing to a higher open, which should be no surprise. After all, a celebration is warranted, and what better place than Wall Street to memorialize the trifecta of wins. So, someone, please, pop the champagne and let’s get partying, right? Um…
Let me tell you what Wall Street heard this morning when news broke of the US-Iran peace framework: lower oil prices, lower inflation, rate cuts on the horizon, buy everything. The Strait of Hormuz is reopening. The war that started on February 28th is finally winding down. Stocks surged in Sunday night futures trading. Oil tumbled more than 4%. My ferry friend is already penciling in a soft landing for the second half of the year.
But here is what Wall Street may be missing in the storm of celebratory ticker tape: the shadow data that lurks just beyond the headlines.
Let's talk about conveyor belts. Not the kind at your local grocery store. The kind that runs through every manufacturing facility, every distribution center, every chemical plant in America. That belt does not stop moving because two diplomats signed a memorandum of understanding in Geneva. It does not reverse direction because of a social media post that ships can now start their engines. The cost wave that has been building since February 28th has already moved. The damage is locked in. And the earnings reports that will confirm it are coming whether the market wants to hear them or not.
Here is the shadow data point that the peace rally completely ignores. According to last week’s Bureau of Labor Statistics May 2026 PPI release, prices for Stage 1 Intermediate Demand rose 12.3% over the twelve months ended in May. I have mentioned it in a number of videos and even right here in this blog/newsletter, but I am afraid the admission did not land as intended. 12.3% is the largest twelve-month increase since June 2022. In May alone, Stage 1 jumped 3.2%--the largest single-month move since the BLS began tracking this series in December 2009. That is not a rounding error, it’s a record.
For those who don't spend their weekends reading BLS methodology guides–and I totally understand why you wouldn’t–Stage 1 Intermediate Demand is the beginning of the manufacturing food chain. It is the raw and semi-processed inputs that flow into everything else: industrial chemicals, diesel fuel, aluminum scrap, plastic resins, jet fuel. When Stage 1 spikes, the cost pressure does not vanish at that level. It moves down the line. It takes weeks to quarters for that inflation to work its way through Stage 2, Stage 3, and ultimately into the finished goods sitting on a store shelf or a corporate income statement. That is the conveyor belt. And it was already moving since the diplomats booked their flights to Switzerland.
Let’s rewind for a moment. The headline PPI number for May was bad enough on its own terms –up 6.5% year over year, the hottest print since November 2022, blowing past the Wall Street consensus. Final Demand Goods surged 2.8% in a single month, the largest increase in the history of the data series. Gasoline at the wholesale level spiked 23.4%. These are not projections. These are the prices that American manufacturers, distributors, and service providers were actually paying through the month of May–over the past 90 days, actually–while the war was ongoing and the Strait was restricted.
Now think about what that means for the summer earnings season. These costs were being absorbed in Q2. They were being locked into contracts, baked into inventory valuations, and embedded in the cost structures of companies across every sector of the economy. A ceasefire framework signed on June 19th does not rewrite a contract that was inked in April. It does not refund the diesel premium a trucking company paid in May. It does not reverse the industrial chemical price spike that hit a manufacturing firm's input costs in March and April and May. The family run business that supplies parts in the Midwest did not get a retroactive discount because of the party in Geneva.
The market's response this morning has the unmistakable fingerprint of FOMO–Fear Of Missing Out. When stocks surge on geopolitical relief, the instinct is to chase. The big question I am being asked by just about everyone I have run into yesterday and today is: “should I buy?” And I owe to all those asking to explain what I am explaining to you right now: relief rallies and economic reality are not the same thing. One is an emotion. The other is arithmetic.
There is also a second problem hiding inside the framework itself, and I think it is being massively underreported this morning. While oil flows through the Strait of Hormuz may gradually return to normal, the damage already done cannot be reversed overnight. This includes physical damage to oil infrastructure and the economic strain endured by energy-importing economies that faced elevated costs for months. The agreement supposedly calls for a 30-day mine-clearing operation before full passage is restored. Iran's foreign minister has said Tehran intends to maintain control of the strait and charge a service fee for passage–while acknowledging that international law prevents them from calling it a toll. And the nuclear negotiations that are actually the substance of this deal? Those have a 60-day runway before we know if they produce anything binding. The most sensitive issues remain wide open. The little details that we have paint a picture of a narrow framework–not exactly the broad peace agreement that is implied in the social media posts.
A narrow framework does not move the cost curve backward.
The bond market, which is usually the smartest room in the building, has not collapsed its inflation expectations to zero this morning. It shouldn't. The ten-year yield and the inflation breakevens embedded in TIPS pricing know something that stock futures traders apparently forgot: you cannot un-ring a bell. The 12.3% Stage 1 spike that moved through the system over the past year is already in the pipeline. It will show up in Q2 earnings guidance. It will show up in margin compression. And it will show up in the Fed's inflation calculus as Kevin Warsh walks into his very first FOMC meeting tomorrow with a 6.5% PPI staring him in the face.
I want to be clear about something important. I am not saying the peace framework is bad news. It is genuinely good news for the region, for global stability, and for the long-term direction of energy prices. Avoiding continued military escalation is the right outcome. If this holds, oil will continue to ease, shipping costs will moderate, and the upstream manufacturing pressures that drove Stage 1 to those record levels will eventually–eventually–work their way back down through the system. That is real, and it matters.
But "eventually" is not a Q2 earnings call. And "eventually" is not a reason to chase a gap-up open driven by sentiment rather than fundamentals. The conveyor belt that carried those cost spikes downstream is still running. The goods are already on it. The market is celebrating the idea that the factory stopped taking new orders, while ignoring the floor full of product that was already made, already priced at peak input costs, and already on its way to the income statement.
If you are an experienced investor thinking about putting new money to work this morning because of the peace headlines, I would ask you to sit with one number before you do: 12.3%. That is the twelve-month upstream price spike that is already baked in. No memorandum reverses it. There is lots of opportunity in the market right now, but please remember that there are also lots of positive emotions floating around. When you look at all that ticker tape in the air in the old footage, have you ever wondered what Broadway looks like after the music dies down?
FRIDAY’S MARKETS
On Friday, the S&P 500 gained 0.5%, the Nasdaq added 0.3%, and the Dow rose 353 points, or 0.7%, to settle at 51,202, as the SpaceX IPO debut and growing optimism around a potential US-Iran agreement lifted sentiment. The 10-year Treasury yield closed at approximately 4.50%, having pulled back from the session's earlier highs as oil prices fell on deal speculation. WTI crude settled below $85 per barrel, down more than 3% on the day, reaching an eight-week low on reports that both sides were moving toward an agreement to reopen the Strait of Hormuz. SpaceX, which priced its IPO at $135 per share, closed its first day of trading at $161.11, a gain of roughly 19%.
NEXT UP
Empire Manufacturing (June) probably fell to 13.7 from 19.6.
Industrial Production (May) may have risen by 0.3% after climbing by 0.7%.
NAHB Housing Market Index (June) is expected to remain constant at 37.
The week ahead will be jam packed with important numbers as well as a pivotal FOMC meeting.