Stocks drifted lower last week as investors continued to digest the impacts of a growing conflict between Israel and Iran while closely watching how President Trump’s tariffs could impact the US economy.

In the week ahead, geopolitics look set to dominate the conversation.

On Saturday, President Trump said the US military struck three sites in Iran, marking the first entry of the US strike since the conflict escalated on June 13. In a speech at the White House on Saturday night, Trump suggested the US could take further action if “peace does not come quickly.”

The ripple effects of the US’ involvement in this broadening conflict will almost certainly set the tone for markets in the early going this week and likely overshadow the latest economic data and earnings reports set for release.

Last week, the S&P 500 (^GSPC) fell 0.15%, while the Nasdaq Composite (^IXIC) gained 0.2%. The Dow Jones Industrial Average (^DJI) finished the holiday-shortened trading week narrowly above the flat line.

A reading of the Fed’s preferred inflation gauge will highlight economic releases in the upcoming week. Updates on activity in the manufacturing and services sectors, consumer confidence, and the final reading of first quarter economic growth are also expected. A two-day semiannual monetary policy testimony from Federal Reserve Chair Jerome Powell will also be in focus starting on Tuesday.

Quarterly results from Carnival Corporation (CCL), FedEx (FDX), Micron (MU), and Nike (NKE) lead the list of expected corporate releases.

The conflict between Iran and Israel has been in focus over the past week but hasn’t significantly rattled markets yet. This weekend’s actions from the US will likely test this dynamic.

“The key for equities from here will come from energy commodity pricing,” Citi US strategist Scott Chronert wrote in a note to clients on Friday when detailing how the S&P 500 has largely traded flat since the initial missile strike from Israel on June 13.

Oil is up roughly 10% since the outbreak of the Israel-Iran conflict, with West Texas Intermediate futures (CL=F) trading hands around $75 per barrel on Friday. As DataTrek Research co-founder Nicholas Colas pointed out in a research note on June 16, the biggest risk for markets would be a large increase in oil prices that would weigh on economic growth.

Colas analyzed the time period from 1987 through 2019 and found that WTI crude prices typically double compared to the previous year prior to recessions. Colas argued this puts the key level to watch for WTI crude at $120 a barrel, a far cry from the roughly $75 it sat at on Friday. This much of a jump in oil would require a “protracted bout of military action,” per Colas.

The Federal Reserve Open Market Committee’s June meeting came and went with few surprises. As expected, the central bank didn’t move interest rates. And even its forecast for interest rates through the rest of the year didn’t move much, with the median forecast projecting 50 basis points of interest rate cuts, or two reductions, coming by the end of 2025.

The biggest changes came elsewhere in the Fed’s Summary of Economic Projections (SEP) in which the central bank revised up its forecast for inflation while lowering its expectations for economic growth.

In sum, strategists and economists agreed the Fed’s forecasts showed the potential for”stagflation,” where economic growth slows while inflation remains above the Fed’s 2% target. But even that outcome had already been heavily discussed amid the tariff whipsaw.

With seven officials forecasting no interest rate cuts this year and eight penciling in two cuts, there’s clear debate about whether rising inflation or a weakening labor market will drive the Fed’s policy decisions over the next few months.

“As the data come in, you should see those differences diminish,” Powell said.

A key data point is set for release in the week ahead, with the May Personal Consumption Expenditures (PCE) report due out for release on Friday.

Economists expect annual “core” PCE — which excludes the volatile categories of food and energy — to have clocked in at 2.6%, up from the 2.5% seen in April. Over the prior month, economists project “core” PCE at 0.1%, unchanged from May.

“Overall, this would be a good number for the Fed, but it’s hard to take too much signal given the uncertainty tariffs pose around the inflation path,” Bank of America US economist Stephen Juneau wrote in a note to clients.

The S&P 500 has been near a new record high for weeks now but continuously failed to surpass its Feb. 19 close of 6,144.15.

Research from Exhibit A co-founder Matt Cerminaro shows that this is often the case as the S&P 500 chases a new record high following a large drawdown. Cerminaro analyzed each time the S&P 500 has come back to new records following a 20% fall and found that on average, the index takes more than three months to hit a new record high once it’s back within 5% of its all-time high.

In the current instance, the S&P 500 has only been within 5% of its record high since May 12.

Economic data: Chicago Fed activity index, February (-0.14 expected, -0.03 prior); S&P Global US Manufacturing PMI, March preliminary (51.5 expected, 52.7 prior); S&P Global US services PMI, March preliminary (51 expected, 51 prior); S&P Global US Composite PMI, March preliminary (51.6 prior)

Earnings: FactSet (FDS), KB Home (KBH)

Economic data: FHFA house price index, month over month, January (0.3% expected +0.4 prior); S&P CoreLogic CS 20-city year over year, non-seasonally adjusted, January (4.7% expected, 4.48 prior); Conference Board Consumer Confidence, March (94 expected, 98.3 prior); Richmond Fed manufacturing index, March (6 prior);

Earnings: Carnival Corporation (CCL), FedEx (FDX), BlackBerry (BB)

Economic data: MBA Mortgage Applications, week ending June 20 (-2.6% prior); New home sales month over month, May (-6.9% expected, +10.9% previously); Building permits month-over-month, May final (-2% prior);

Earnings: General Mills (GIS), Jefferies (JEF), Micron (MU), Paychex (PAYX), Winnebago Industries (WGO)

Thursday

Economic data: First quarter GDP, third revision (-0.2% annualized rate expected, -0.2% previously); First quarter personal consumption, third revision (+1.2% previously); Initial jobless claims, week ended June 21 (247,000 expected, 245,00 previously); Pending home sales month over month, May (0% expected, -6.3% previously); Durable goods orders, May preliminary (+7.5% expected, -6.3% prior); Wholesale inventories, May preliminary (+0.2% prior)

Earnings: McCormick (MKC), Nike (NKE), Walgreens Boots Alliance (WBA)

Economic data: PCE inflation, month over month, May (+0.1% expected, +0.1% previously); PCE inflation, year over year, May (+2.3% expected, +2.1% previously); “Core” PCE, month over month, May (+0.1% expected, +0.1% previously); “Core” PCE, year over year, May (+2.6% expected; +2.5% previously); University of Michigan consumer sentiment, June final (60.5 expected, 60.5 prior); Kansas City Fed services activity, June (11 prior); Personal income, May (+0.3% expected, +0.8% prior); Peresonal spending, May (+0.2% expected, +0.2% prior)

Earnings: No notable earnings releases.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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