Economic and Market Overview
June 2026
The equity rally broadened and credit spreads widened in the face of heavy supply. Meanwhile, the yield curve flattened after a hawkish FOMC announcement and the price of oil tumbled on evolving optimism toward a resolution to the Middle East conflict.
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The S&P 500 closed at a new all-time high on June 2 but ultimately fell by 1% over the month. Meanwhile, the equally weighted version of the index gained 2.4% and the Russell 2000 returned 3.7%. In Treasuries, a hawkish summary of economic projections accompanied Kevin Warsh’s first FOMC meeting and sparked a bear flattening of the yield curve (see below). Credit spreads widened, particularly at the long end as supply was very heavy and included two $25 billion mega-deals from Nvidia and SpaceX. J.P. Morgan reported $204 billion in investment-grade issuance, 124% more than the average for the trailing four Junes. In high yield, the month saw $35 billion in issuance, also exceeding the trailing $25.0 billion average since 2010. WTI fell sharply on Iran headlines, finishing within a few dollars per barrel of its 2/27 close ($67.09/bbl). As front-end rates rose, the Dollar Index rose 2.3%, while gold fell 11.7%.
Economic Data
Labor market data suggested that the U.S. economy likely remains in a low-hire, low-fire state, though it is trending in a positive direction. Nonfarm payrolls growth surged at a 172k pace in May, 84k more than expected, even as the prior two months were revised up a net 93k, while the unemployment rate remained steady at 4.3%. At 188k, the 3m average of payroll growth could reflect a breakout rather than a stabilization, with job creation having bottomed in the middle of 2025, when trade policy uncertainty peaked. For June, the current consensus is for a 115k gain in nonfarm payrolls and no change in the U-3 rate when data are released on July 2. The pace of retail sales accelerated to 0.9% MoM in May (from 0.4%) and comfortably topped expectations (0.6%). Both major consumer sentiment indices increased MoM but remained below their December 2025 levels. Housing releases were mixed but disappointing on balance, as new home sales and housing starts fell well short of forecasts. Manufacturing data releases were generally stronger than expected, though the strength was again linked to efforts to front-run price pressures associated with the ongoing conflict. Sentiment in the services industry also improved. Q1 GDP growth was revised 0.5% higher to a 2.1% pace in the third release, even though personal consumption was revised down by 0.9% to 0.5%. Q2 GDP is expected to remain around 2%.
Inflation
May CPI came in at 0.5% MoM and 4.2% YoY, broadly in line with expectations, with energy prices driving much of the surge. Core CPI rose just 0.2% MoM, a downshift from April’s 0.4% and below the 0.3% consensus, while core goods prices fell for the first time in over a year, suggesting the bulk of tariff-related pass-through may be behind us. PPI came in well above expectations at 1.1% MoM, with a 23.4% surge in gasoline accounting for over half the gain in goods prices. Headline PCE ran at a 4.1% annual rate, while core PCE rose 3.4% YoY, in line with expectations. May’s PCE report may mark the peak of the latest inflation surge, as crude oil eased in June amid hopes that the Strait of Hormuz had reopened. This led to a decline in breakeven inflation rates over the month.
Federal Reserve
The most significant market-moving development was the hawkish surprise in the dot plot, which flipped from a majority projecting cuts in March to many projecting hikes in June, driving short-term rates higher. New Chairman Warsh wasted no time reshaping Fed communications, cutting the FOMC statement in half to its shortest since before the global financial crisis and signaling further changes ahead. Substantive decisions were deferred to five newly announced task forces. The June meeting was defined by a commitment to price stability and a distaste for forward guidance. However, with qualitative guidance stripped from the statement, the quantitative guidance in the dots remained and was ironically the primary driver of the hawkish market reaction. Throughout his press conference, Warsh was notably evasive, on four occasions punting to task forces rather than addressing questions relevant to the near-term policy debate. Sharing views on topics like the neutral rate or AI productivity is transparency, not forward guidance, and while the committee may wish to reduce the former, a full retreat to Greenspan-era opacity is likely a bridge too far.
Sources: Bloomberg Index Services Ltd., Bloomberg.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data are as of the dates noted.
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