Hormuz Deal Lifts Equities, But Hawkish Fed and Dollar Rally Temper the Gains

The week of June 15–19 was defined by two seismic and partially offsetting macro forces: the announcement of a US-Iran peace deal and the imminent reopening of the Strait of Hormuz, and a hawkish debut from new Fed Chair Kevin Warsh at the June FOMC meeting. The net result was a week that gave with one hand and took with the other. The S&P 500 closed at 7,420.10, down -1.78% on the week, trading below its 20-day moving average of 7,470 but holding well above the 50-day at 7,282. The Nasdaq fell -2.48% to 26,021.66, similarly slipping under its own 20-day at 26,315. WTI crude cratered -5.21% to $76.54 — approaching the psychologically important 200-day moving average near $74 — while Brent followed in lockstep. Gold, which had served as a geopolitical hedge throughout the Iran conflict, surrendered -3.58% to $4,172.90, well below its 20-day ($4,377) and 200-day ($4,452) levels, with RSI sinking to 38.7. The US Dollar Index surged 1.32% to 100.85, punching through its 20-day, 50-day, and 200-day moving averages clustered near 99 and reaching an RSI of 62.7. The 10-year Treasury yield settled at 4.45%, pulling back 0.40% on the week as crude's collapse raised questions about the Fed's inflation trajectory.

The dominant macro event of the week arrived before Monday's open: President Trump signed the 14-point 'Islamabad Memorandum of Understanding' with Iranian President Pezeshkian at the Palace of Versailles on June 15, formally ending the US-Iran war that had closed the Strait of Hormuz since March 4. The Strait's closure had disrupted roughly 20% of global oil and LNG flows and, according to EIA estimates, had shut in 11.3 million barrels per day of Middle Eastern production at its peak. WTI fell -5.21% on Monday alone to $80.75, with the energy complex dragging further into the week. Pakistan brokered the deal; it commits Iran to reopen the Strait and initiates 60 days of nuclear negotiations. Critically for markets, the sanctions relief pledged in the MOU — including lifting congressionally mandated sanctions on Iran and unfreezing Iranian assets — cannot be executed by executive order alone. Many of the most consequential Iran sanctions were codified into law by Congress, meaning full implementation will require legislative action, a constraint that shipping firms and insurers were already factoring into their cautious posture around Hormuz transits. European equities rallied sharply Monday (Stoxx 600 +1.9%), but US stocks gave back those gains and then some over the balance of the week. Meanwhile, strong May retail sales — up 0.9% month-on-month versus a 0.5% consensus, with the control group rising 0.7% — reinforced the sense of a resilient consumer just hours before the FOMC announcement.

The second defining event arrived Wednesday afternoon. In Kevin Warsh's first FOMC meeting as Fed Chair, the committee voted 12-0 to hold the federal funds rate at 3.50%–3.75% for the fourth consecutive meeting — but the hawkish surprise lay in the updated dot plot. The median year-end 2026 rate projection jumped to 3.8% from 3.4% in March, with nine of eighteen officials projecting at least one hike this year. The Fed raised its 2026 headline PCE inflation forecast to 3.6% and core to 3.3%, while cutting GDP growth to 2.2%. The post-meeting statement was stripped down to approximately 114 words with all forward guidance language removed — a deliberate stylistic departure under Warsh, who also declined to submit his own dot projection given his publicized skepticism of the SEP framework. Markets reacted sharply: the S&P 500 fell roughly -1.78% on the day, 2-year Treasury yields surged 14 basis points to multi-year highs, and the DXY spiked toward 100.40. Traders repriced a potential hike as early as October 2026. The irony was acute — the Iran deal that had just drained the inflation premium from energy markets may, over coming months, force a material downward revision to the Fed's own inflation forecasts, but Warsh and his colleagues were not prepared to say so on Wednesday.

The cross-asset implications were layered and, in places, contradictory. Gold's -3.58% decline reflected two bearish forces arriving simultaneously: the removal of geopolitical risk premium as Hormuz tensions eased, and the hawkish Fed repricing that lifted real rates and the dollar. The dollar's 1.32% weekly gain — breaking above its cluster of key moving averages — compounded dollar-denominated commodity weakness across the board. Crude's RSI of 31.3 signals oversold conditions, but with the 200-day near $74 acting as near-term support, the market is testing whether the physical oil market responds quickly enough to Hormuz reopening to anchor prices. Nonfuel import prices running at 3.7% year-over-year — their highest since August 2022 — and air freight costs up 27.6% annually pointed to lingering tariff and supply-chain inflation that the energy deflation alone cannot fully offset. Housing data added a cautionary note: starts plunged 15.4% in May to a six-year low even as pending home sales beat sharply at +3.8%, a divergence that captured the housing market's paralysis between demand pent up and supply structurally constrained. With US markets closed Friday for Juneteenth, Thursday effectively served as the week's closing session, locking in the Fed's hawkish imprint before a long weekend.

Heading into the week of June 22, the central unresolved question is whether the Hormuz reopening proceeds fast enough — and with sufficient shipping-industry confidence around demining and war-risk insurance — to translate into materially lower oil prices that force the Fed to revisit its hawkish rate path. Warsh's first dot plot will be scrutinized intensely as crude prices fall further toward the 200-day; if WTI sustains a move below $75, the October hike probability markets have priced may unwind quickly. Equally important is whether congressional Republicans have the appetite to codify the Iran sanctions relief the MOU promises — without which the deal remains aspirational rather than binding, and the oil market's discount may prove premature. Fed speakers through the week will be watched for any signal that falling energy prices are being incorporated into the inflation forecast, while the dollar's breakout above key moving averages adds a new headwind for multinationals reporting second-quarter earnings beginning in July.