Markets returned to positive territory for the week, with the turning point occurring Thursday after the announcement of a potential deal with Iran that would extend the ceasefire while reopening the Strait of Hormuz for the first time since February 27. Oil fell, which helped push Treasury yields lower, and investors hoped inflationary pressures would ease in the coming months and provide relief to parts of the economy feeling the pinch of higher prices. Economically and interest rate-sensitive U.S. Small- and Mid-Cap stocks continued their strong 2026 run, with each posting new all-time highs on Friday.
The economic data for the week emphasized the growing risk of continued inflationary pressure. Year over year, headline Consumer Price Index (CPI) inflation rose to 4.2 percent in May, the highest level since April 2023, while core CPI inflation checked in at a more modest 2.9 percent, up from the recent low of 2.5 percent before the conflict began. Much like in every inflation report, there was good and bad news, but the overall reality greeting new Federal Reserve Chair Kevin Warsh at his first meeting this week is that no measure of inflation has been at the U.S. central bank’s 2 percent target since March 2021, while nearer-term measures are all headed upward.
The impact of higher inflation showed up in the National Federation of Independent Business (NFIB) Small Business Optimism Index, which fell to its lowest level since October 2024. Importantly, a net 36 percent of respondents reported having raised prices in the past three months, the highest level since March 2023. Casting further uncertainty over the path of future inflation, a net 34 percent plan to raise prices in the next three months, marking the highest level since July 2022, when CPI was running hot. While overall labor markets had a strong year in 2025, this report hinted at the potential for a future slowdown, with only 9 percent of respondents planning to hire in the next three months, the lowest since May 2020, while a near-record low in data stemming back to late 1974 plan to invest in their business in the coming months.
The pressure of higher prices continued to show up in the University of Michigan Consumer Sentiment Survey. Encouragingly, the survey results rose; however, it remains at the second-lowest level in history, just above last month’s all-time low in data back to 1978. This survey continues to paint a picture of how consumers’ economic experiences differ depending on their level of wealth and income. While lower-income consumers have recently posted dour sentiment due to higher prices, the June survey saw a particularly strong increase in this segment as gas prices fell from their recent high of $4.56 on May 20 to $4.16 on June 8 (the survey was taken May 19 to June 8), when the survey window closed. This is not surprising given that gasoline comprises a larger share of lower-income consumers’ budgets. Overall, consumers across all segments continue to be impacted by high prices, with the survey noting that 57 percent of consumers spontaneously mentioned that high prices were eroding their personal finances, unchanged from last month and up from 36 percent a year ago. The survey also showed that consumers increasingly view inflation as a bigger risk than unemployment, with those who believe inflation is the biggest risk rising to 38 percent from 23 percent at the beginning of the year, while unemployment risks have fallen from 14 percent to 6 percent.
This sets the stage not only for the importance of energy prices and reopening the Strait of Hormuz but also for the challenges the Federal Reserve faces in the coming months. We, much like the markets, believe the Fed will stand pat as long as it can, but with the labor market healing, all eyes shift to whether the Fed focuses on its inflation mandate, which could lead to rate hikes later in 2026.
All of this was overshadowed by Friday’s initial public offering of Elon Musk’s SpaceX, which quickly became the largest public listing in history. The company isn’t currently profitable, but enthusiasm is driven by its future potential—potential that may or may not be realized. For investors in search of exposure, the good news is that it will likely be included quickly in many indices and exchange-traded funds (ETFs). History has shown, however, that not every hotly anticipated IPO has lived up to initial expectations.
While each situation is unique, the reality is that large IPOs have historically struggled in the year after their listing. Look no further than the prior five largest U.S.-listed IPOs—Alibaba (BABA) in 2014, Visa (V) in 2008, Meta (META) in 2012, General Motors (GM) in 2010, and Uber (UBER) in 2019. Every single one of these companies delivered negative returns in the year following its first trading-day close, with only Visa providing those who received the IPO offering price a positive return. For those curious about Elon Musk’s Tesla (TSLA) IPO on June 29, 2010, it was a smaller listing but did provide investors both at the IPO price and those who bought on the first day with positive one-year returns. Importantly, however, it underperformed broader U.S. indices (the S&P 500 Index of Large-Cap stocks, the S&P 400 Index of Mid-Cap stocks, and the S&P 600 Index of Small-Cap stocks) during the same time period.
This is not unique. If you look at indices that track IPOs and their subsequent performance, they have, over time, underperformed the aforementioned broader U.S. equity market indices. While they have different inclusion rules and rebalancing methodologies, both the NYSE IPO Index, which tracks NYSE-listed IPOs, and the broader Renaissance IPO Index, each of which adds new IPOs and drops them approximately three years later, have underperformed the broader U.S. indices since their inception.
This analysis does not constitute an opinion on how SpaceX may perform following its public debut but is meant to serve as a reminder that, at least historically, opportunities to buy have often occurred after the initial listing day. With more headline-grabbing IPOs still to come, including Open AI and Anthropic, the hype will likely continue. While they will undoubtedly continue to garner media attention, what matters more to financial markets is the path the economy takes in the coming quarters and how the broader artificial intelligence (AI) theme continues to evolve. The reality is that AI is becoming increasingly expensive to bring to life, and companies that once could fund that spend of cash flow are increasingly having to raise outside capital, both debt and equity. If the Fed needs to raise rates and tighten financial conditions, that would make capital more expensive and potentially put some of that AI funding at risk, with important implications for AI- and tech-related stocks. The good news is that other parts of the equity market, such as Mid- and Small-Cap stocks, have been performing well, with markets continuing to broaden even in the face of heightened uncertainty.
Ultimately, periods like this serve as a reminder that while innovation and new opportunities can be exciting, successful investing has never been about chasing the latest headline. Markets tend to reward discipline, diversification, and a focus on long-term fundamentals—not short-term enthusiasm. Whether an IPO goes on to justify the optimism or falls short, maintaining a balanced approach remains one of the most reliable ways to navigate uncertainty and achieve durable outcomes over time.
About the Author:
Brent Schutte, CFA, is chief investment officer of the Northwestern Mutual Wealth Management Company.
