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Weekly Economic Update
Last Week and the Economy
Last week our tracked stock indices recorded gains across the board. The small-cap Russell 2000 led the charge with a 2.72% gain, followed closely by the Dow Jones Industrial Average, which rose by 2.13%. The international MSCI EAFE notched a robust advance of 2.05%, while the benchmark S&P 500 and the tech-heavy NASDAQ Composite posted more modest increases of 0.88% and 0.45%, respectively.
Potential Breakthrough Emerges in Strait of Hormuz Diplomatic Talks
Negotiations regarding the two-month-old blockade of the Strait of Hormuz saw a potential breakthrough over the weekend. Reports emerged on Sunday, May 24, indicating that the United States and Iran are close to signing an agreement that includes a 60-day ceasefire extension. Under the draft terms of the proposed deal, Iran would reopen the waterway to all commercial shipping and clear the maritime mines that it previously deployed across the passage. In exchange, the United States would lift its naval blockade on Iranian ports and issue targeted sanctions waivers, allowing Iran to sell oil freely on the global market.
The draft agreement also includes verbal commitments from Iranian officials to negotiate a long-term suspension of its uranium enrichment program and the removal of its highly enriched uranium stockpile. However, an Iranian source subsequently denied reports of any formal commitment to give up its nuclear material. Currently, the ongoing logistics crisis affects more than 1,550 commercial vessels and 22,500 mariners who occupy the gridlocked waters in and around the trade chokepoint.
The diplomatic discussions follow a mid-week warning from energy research firm Wood Mackenzie on May 20, which stated that an extended closure of the strait through the end of 2026 could push Brent crude oil prices toward $200 per barrel and trigger a shallow global recession. According to United Nations data released on May 19, the persistent shipping disruptions continue to drive up international transport and insurance costs while slowing projected global economic growth to 2.5% for the year.
Federal Reserve Minutes Uncover Deep Internal Policy Fractures
The Federal Reserve released the detailed minutes from its April 28–29 monetary policy meeting on Thursday, May 21, revealing significant internal disagreement among central bank officials. The meeting itself drew four dissenting votes out of twelve members, which marks the highest number of dissents a single policy decision has seen since October 1992. The records reveal that policymakers have split into three distinct groups regarding the future path of the federal funds rate – the benchmark interest rate that guides borrowing costs throughout the U.S. economy – which currently sits at a target range of 3.50% to 3.75%. One faction believes additional rate cuts remain appropriate if inflation slows, a second group advocates keeping interest rates steady to evaluate incoming data, and a third group opposes near-term easing entirely.
Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan anchor this third group, pushing for tighter borrowing discipline. These members expressed concern that a premature interest rate cut could permanently fix consumer inflation expectations above the central bank’s 2% target. To handle these internal divisions, officials endorsed a “two-sided risk framework,” which means the Federal Reserve will keep both interest rate cuts and interest rate hikes on the table depending entirely on future economic data.
Policymakers also flagged deep concern that rising crude oil prices are lifting near-term inflation expectations. This development follows the release of April consumer price index data, which showed inflation rising to 3.8% year-over-year, with energy costs contributing more than 40% of that gain. Following the publication of the minutes, the CME FedWatch Tool – which tracks market expectations for central bank policy – indicated that investors place a roughly 99% probability on the Federal Reserve keeping interest rates unchanged at its upcoming June meeting.
Long-Term Treasury Yields Surge to Highest Levels Since 2007
The United States government bond market experienced sharp valuation adjustments during the week as public borrowing costs climbed to multi-year highs. On Tuesday, May 19, the 30-year Treasury yield briefly reached 5.197% marking its highest peak since July 2007. Concurrently, the benchmark 10-year Treasury note yield rose to 4.687%. Because bond yields move in the opposite direction of bond prices, these rising rates reflect a widespread decrease in fixed-income asset prices. These fluctuations occurred alongside rising global energy prices and ongoing geopolitical friction in the Middle East.
This upward pressure on long-term borrowing costs extended beyond domestic borders into international fixed-income markets. The 30-year United Kingdom gilt yield – the British equivalent of a long-term U.S. Treasury bond – reached its highest level since 1998. Similarly, Japan’s 30-year government bond yield touched a record high during the same trading period.
Additionally, the U.S. Department of the Treasury released its latest international capital data on Monday, May 18, revealing a pullback in foreign ownership of American sovereign debt. Total foreign holdings of U.S. Treasuries decreased to $9.25 trillion from the previous period’s $9.49 trillion. Within the report, China reduced its direct holdings of U.S. government debt to $652.3 billion. This adjustment represents China’s lowest overall allocation to American sovereign debt since September 2008.
Data Sources for stock and index quotes: Yahoo Finance, WSJ
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Key Economic Data Points
| Data Point | Date | Current | Change from Prior Period | Next Report |
| Unemployment Rate | 04-2026 | 4.3% | 0 | June 5th |
| FOMC Target Rate | 04-2026 | 3.50% – 3.75% | 0 | June 17th |
| GDP | Q1 2026(adv) | 2.0% | +1.5 | May 28th |
| PCE Inflation | 03-2026 | 3.5% | +0.7 | May 28th |
Data Sources: U.S. Bureau of Labor Statistics, Federal Reserve, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis
Weekly Quote:
"The most important thing about an investment philosophy is that you have one."
-David Booth, Founder & Executive Chairman, Dimensional Fund Advisors
The Week Ahead – Economic Data & Events
Monday: Memorial Day Holiday
Tuesday: Philadelphia Fed Non-Manufacturing Survey, Consumer Confidence, Dallas Fed Manufacturing Survey, SCE Public Policy Survey
Wednesday: Corporate Bond Market Distress Index (CMDI), New Residential Sales, Richmond Fed Survey of Manufacturing Activity, Dallas Fed Texas Retail Outlook Survey
Thursday: Advance Durable Goods, Gross Domestic Product 2nd Release, Personal Income and the PCE Deflator, Economic Heterogeneity Indicators (EHIs)
Friday: Multivariate Core Trend Inflation, R-Star (LW Estimates)
Weekly Reports: Mortgage Applications (Wednesday), EIA Petroleum Status Report (Wednesday), Jobless Claims (Thursday), EIA Natural Gas (Thursday), Fed Balance Sheet (Thursday), Baker Hughes Rig Count (Friday)
Source: New York Fed
The Week Ahead – S&P 500 Companies Reporting Earnings
Monday, May 25, 2026: No S&P 500 companies confirmed for this date.
Tuesday, May 26, 2026: AutoZone Inc. (AZO): PMO
Wednesday, May 27, 2026: DICK’S Sporting Goods Inc. (DKS): PMO, Agilent Technologies Inc. (A): AMC, Salesforce Inc. (CRM): AMC, HP Inc. (HPQ): AMC, Marvell Technology Inc. (MRVL): AMC, Synopsys Inc. (SNPS): AMC
Thursday, May 28, 2026: Best Buy Co. Inc. (BBY): PMO, Burlington Stores Inc. (BURL): PMO, Dollar Tree Inc. (DLTR): PMO, Hormel Foods Corp. (HRL): PMO, Autodesk Inc. (ADSK): AMC, Costco Wholesale Corp. (COST): AMC, NetApp Inc. (NTAP): AMC
Friday, May 29, 2026: No S&P 500 companies confirmed for this date.
AMC = After Market Close, PMO = Prior to Market Open
Source: Yahoo Finance
Weekly Tip:
Secure your credentials. Consider using a password manager, as they can make it easy to use distinct, strong credentials for your financial and other personal accounts.
Data Sources for stock and index quotes: Yahoo Finance, WSJ
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Last Week's Riddle and Answer
Last Week's Riddle:
What has a mouth but never speaks, has a bed but never sleeps, and has a head but never weeps?
Last Week's Answer:
The answer is a river. Rivers have mouths, beds, and heads; however, they never speak, sleep, or weep.
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