US stocks fell last week, reversing early gains due to rising tensions in the Middle East. The S&P MidCap 400 and Russell 2000 dropped around 1.5%, and the Dow lost 1.3%, slipping into negative territory for the year. Major indexes had risen earlier on upbeat economic data and progress in US-China trade talks, but markets turned sharply lower Friday after Israel launched airstrikes on Iran, triggering retaliation. Energy stocks gained as oil prices surged, while broader markets declined. Inflation data boosted sentiment midweek — May CPI rose 2.4% y/y, below expectations, and core inflation remained stable. Wholesale inflation was also lower than forecast. Business and consumer confidence improved: the NFIB small business index rose to 98.8, and consumer sentiment jumped to 60.5. US Treasury prices climbed on the weak inflation data, although they dipped Friday amid geopolitical concerns.
European stocks declined, with the STOXX Europe 600 falling 1.6% amid US trade uncertainty and Middle East tensions. Germany’s DAX dropped 3.2%, Italy’s FTSE MIB 2.9%, and France’s CAC 40 fell 1.5%. The UK’s FTSE 100 was flat. UK GDP shrank 0.3% in April, its sharpest fall since October 2023, due to weakness in services and production. Unemployment rose to 4.6%, and private-sector pay growth slowed to 5.2%, the lowest since Q3 2024. In the eurozone, industrial output dropped 2.4%, and the trade surplus narrowed sharply to €9.9 billion. European Central Bank officials signaled a pause in rate cuts, citing caution over US tariffs. ECB President Lagarde said policy is “well calibrated,” while some economists see only one or two cuts left in this cycle.
