The US stock market continued to rise last week as investors weighed between geopolitical conditions in the Middle East and an expected tightening of monetary policy by the Fed.
The S&P 500 rose 0.9 percent for the week to 7,500, while technology stocks, supported by chipmakers, added 2.4 percent.
Peace agreement in sight
The optimistic mood at the beginning of the week was colored by the achievement of a memorandum of understanding between the US and Iran, which should end hostilities between the two countries and pave the way for a more comprehensive peace deal. The US lifted the country’s naval blockade, while Iran promised to open maritime traffic through the Strait of Hormuz, SEEbiz reports. Crude oil prices fell sharply and effectively returned to the level seen at the beginning of the conflict in late February.
However, the situation was further complicated during the week after Israel continued its offensive on Lebanon and the Iranian side closed Hormuz again over the weekend ahead of further peace talks. Trump called on Tehran to rein in Hezbollah and threatened new attacks on Iran via social media.
Under such circumstances, new talks were held in Switzerland over the weekend, with mediators declaring that the first round of high-level talks between the US and Iran had concluded and that “encouraging progress” had been made. The mediator was also told that the two sides agreed to establish a high-level committee to oversee the negotiations and that the goal would be to reach an agreement within 60 days through more technical talks.
Fed tightens policy under new president
At the macro level, the focus of investors’ attention was the first meeting of the Fed under the leadership of the new chairman, Kevin Warsh. As expected, the Fed unanimously kept the interest rate in the range of 3.50-3.75 percent where it has been since the end of 2025, but removed the wording from the announcement about possible future interest rate cuts and significantly increased the chances of tightening monetary policy.
Warsh initiated a reduction in the volume of Fed announcements and did not participate in the previously customary forecasting of future interest rate movements by Fed members. This projection showed that the average estimate of the interest rate at the end of 2026 is expected to be 3.8 percent, compared to 3.4 percent in the previous projections from March.
Officials also changed their views on the economy, raising the outlook for inflation in 2026 to 3.6 percent and 3.3 percent for core inflation, up from forecasts for both in March of 2.7 percent. They also slightly lowered the GDP growth projection to 2.2 percent, which is a drop of 20 basis points compared to March, and reduced the unemployment projection to 4.3 percent, which is a drop of ten basis points.
After the meeting, the market expects an interest rate increase of 25 basis points to 3.75-4.00 percent already in September, while the probability of another increase in December has moved above 50 percent.
What’s next for the European automotive sector?
In the corporate area, the focus of investors’ attention was on the movement of shares of the company SpaceX, which in the first full week after the IPO recorded growth, but also expected large fluctuations. In the European market, German carmaker BMW cut its business outlook for the current year, leading to another sell-off in the sector, which has been suffering for years from Chinese competition and weaker consumer sentiment.
BMW lowered its forecast operating margin range in the automotive segment to 1-3 percent, compared to the previously expected 4-6 percent. Following this revision of expectations, the group’s pre-tax profit in 2026 could fall significantly, compared to the previous forecast which predicted a moderate decline.
This is the third revision of BMW’s profit in the last two years, which is based on weaker sales in the Chinese market, which this year could not be neutralized by positive trends in Europe and the USA. Automakers in general are facing both weaker demand for vehicles with internal combustion engines and higher costs due to the war in Iran.
All of the German automakers saw sharp corrections in their share prices last week, and now the decline in 2026 is being measured at high double-digit rates.
