Peace Prospects, Inflation Pressures, and SpaceX’s Historic IPO Drive Markets

The Iran conflict, inflation reports, and the largest initial public offering of all time each took its turn in the spotlight last week. The fragile ceasefire with Iran looked ready to collapse after Iran shot down a U.S. Apache helicopter, and the U.S. retaliated with strikes on Iran. The back-and-forth, along with the President’s threats of additional action, pushed stocks lower. The Dow Jones Industrial Average dropped more than 900 points on Wednesday, and the technology-heavy Nasdaq slipped nearly 2%. Stocks quickly rebounded, however. In a stunning reversal, the President announced new progress on a peace agreement that he expected to be signed within days. The Dow largely reversed its losses, jumping 900 points Thursday, while the Nasdaq added 2.5%.

A deal with Iran could go a long way toward cooling inflation, which rose above 4% for the first time in three years. The Consumer Price Index increased 0.5% for the month and 4.2% year-over-year. Much of the increase came from a 23.5% surge in energy prices driven higher by the conflict. Airline fares, an indication that higher energy prices may be filtering through to other sectors of the economy, also moved higher. Meanwhile, producer prices increased 6.5%. Again, energy prices were largely to blame, with gasoline prices rising 23.4%. The latest inflation readings provide little support for lower interest rates in the near term and could potentially push the Federal Reserve toward additional tightening if inflation remains elevated.

SpaceX’s highly anticipated public debut provided a positive finish to the week. The stock was expected to soar when it began trading on Friday, driven by strong investor demand and Elon Musk’s popularity among retail investors. The company did not disappoint. Shares opened at $150 and closed the day at $161, up 19% from the $135 offering price. The largest IPO in history made Elon Musk the world’s first trillionaire, with his net worth now estimated at nearly $1.2 trillion. SpaceX is expected to join the Nasdaq index but will not qualify for inclusion in the S&P 500 until it satisfies the index’s 12-month trading requirement and profitability standards.

The major market indices all finished the week modestly higher. Looking ahead, investors will closely watch the Federal Reserve’s upcoming meeting, which marks Kevin Warsh’s first as Chair. The Fed is widely expected to leave rates unchanged, but markets will be paying close attention to Warsh’s comments regarding inflation, economic growth, and the path of monetary policy.