Biweekly Investment Insights: Energy Pressure Eases, Fed Pressure Build

Yanni Angelakos, Head of Investment Insights, Nasdaq Capital Access Platforms
Mike Cho, CFA, Senior Research Analyst, Nasdaq Capital Access Platforms
Tony Kristic, Senior Research Analyst, Nasdaq Capital Access Platforms

Key Points

• Brent crude prices hit pre-U.S.-Iran conflict levels with trade volumes recovering, but fresh flare-up in tensions drove prices 13.6% higher WTD through Wednesday before Thursday’s pullback
• Earnings powering markets despite energy disruption
• Fed facing mixed economic data but hike priced in by December

Biweekly Chart in Focus: Traffic and Trade Volume in the Strait of Hormuz
 

Source: IMF PortWatch. Data through 28-Jun-2026

Summary

Before this week’s flare-up in tensions which may have an impact on transit through the Strait of Hormuz, shipping traffic through the Strait was staging a recovery, with seven-day average transit calls rising sevenfold from the June 1 trough of just 4.6 ships per day to 32.6 vessels by June 28th, while trade volume rose ninefold from approximately 137,000 metric tons to 1.30 million metric tons over the same period. The year-over-year deficits through June 28th were narrowing rapidly—transit calls improved from -120 ships to -51 ships, and the trade volume shortfall shrunk from -4.6 million to -1.5 million metric tons, recovering over 3 million tons in daily throughput compared to the worst point of the disruption. Perhaps most tellingly, Brent crude prices unwound nearly all of the geopolitical risk premium that sent it surging 92% from a pre-conflict 7-trading day average price of $71.81/bbl to a peak of $138.21 on April 7th. The last 7-trading day average price through July 3rd was $71.96—essentially back to pre-conflict levels—but this week’s price surge from renewed tensions in the Strait pushed Brent to $77.99 at close on Wednesday, before a pullback on Thursday.

Prior to the latest developments, the price normalization was signaling that markets were growing confident the worst may have passed for this critical energy chokepoint, which handles roughly 20% of global oil trade, and the trajectory since early June suggests commercial vessels were steadily returning to the strait. The narrowing gap toward the Biweekly Chart in Focus’ neutral zero line indicates that normalization, while still incomplete, was underway.

Details

AI hardware trade momentum continues

The disruption in energy has not held back markets due to AI-driven demand. Micron (MU) recently joined the $1 trillion market-cap club (becoming the 9th current firm in the Nasdaq-100® Index (NDX®) with a market cap of this level), on the back of an earnings report showing revenue up 74% Q/Q and 346% Y/Y. Despite this, the stock currently has the second lowest Price/NTM EPS across all Nasdaq-100 stocks according to FactSet data; Sandisk, another benefactor of the hardware trade, has the sixth lowest. Micron projects high demand and low supply to persist—per their investor presentation deck: “We expect tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints.” Based on FactSet estimates, Micron is the only non-hyperscaler in the Nasdaq-100 projected to deliver double-digit billions in capex growth from 2026 to 2027, with estimated spend increasing by $18 billion (Figure 2).

Figure 2: Hyperscaler and Micron Capex Estimates
 

Source: FactSet

In our prior report, we noted that the Nasdaq Philadelphia Semiconductor Index (SOX) had its largest daily drop since the onset of Covid, after the strongest 2-month gain on record since 1994 (+69.1%). But since the U.S.-Iran conflict began, SOX has surged 55.9% in price terms with NTM EPS expectations jumping +64.1%. Despite this rally, the sector’s NTM P/E compressed only -3.0%, suggesting semiconductors are pricing in much of the earnings upside but remain supported by strong fundamentals. The KOSPI Composite followed with a +29.5% price return and an extraordinary +84.2% EPS surge—the largest earnings revision across indexes shown in Figure 3—yet its forward P/E contracted -28.2%, signaling Korean equities have become notably cheaper despite the rally. Japan’s Nikkei 225 saw slight P/E expansion (+2.3%) along with U.S. small caps (+4.5%), and the Nasdaq-100 gained +17.5% (price) with +22.9% EPS growth, compressing its P/E by -3.2%. The key takeaway: with most showing P/E compression as earnings revisions outpaced price gains, valuations have broadly improved, suggesting a post-Hormuz recovery that relieves energy input costs further, may have more room to run.

Figure 3: Index Price, EPS, and P/E Changes Since the Start of the U.S.-Iran Conflict
 

Source: FactSet

U.S. labor market numbers revised down but holding, inflation high, manufacturing data showing stability, and implied Fed funds rate at 3.94% by October

Some highlights from recent economic releases:

• June’s non-farm payrolls missed expectations but still above 12-month moving average
• Personal Consumption Expenditures (PCE) at highest level in 3 years
• Manufacturing Purchasing Managers Index (PMI) showing bright spots
• Expectations for 375–400 bps for Fed funds range by the October meeting

The U.S. labor market may be finding a floor after a prolonged cooling period, with June nonfarm payrolls adding +57k jobs (below consensus estimates)—a step down from May’s +129k gain but still above a depressed trailing average. However, the latest BLS release also brought unwelcome downward revisions: April revised down by -31k (to +148k) and May by -43k (to +129k), shaving a combined -74k jobs from prior estimates. Figure 4 highlights the broader trend: trailing 12-month job gains have slowed dramatically from nearly 300k in mid-2023 to just +42k, but the decline appears to have leveled off. June’s +57k NFP reading sits modestly above its trailing average, suggesting tentative stabilization rather than further deterioration. Average hourly earnings rose 0.35% in June to $37.64, translating to 3.5% Y/Y growth—continuing the gradual deceleration from the 5%+ peaks of mid-2022. For the Fed, stabilizing labor conditions are an encouraging sign, but accelerating inflation complicates the path forward.

Figure 4: Labor Finding Its Footing
 

Source: Bureau of Labor Statistics

May’s PCE Price Index reading of 4.1% year-over-year in Figure 5 marks a significant reversal from the disinflationary trend that had dominated since mid-2022. At its peak in June 2022, headline PCE inflation reached 7.2% before steadily declining to a trough of just 2.3% in September 2024. However, after hovering under 3%, headline PCE inflation has accelerated sharply over the past three months by a combined 1.2 percentage points since Feb-2026, representing the fastest reacceleration since the initial post-pandemic inflation surge. Core PCE ex-food and energy tells a somewhat less dramatic but still concerning story. At 3.4% in May 2026, it remains elevated above its April 2025 trough of 2.6%. The more muted movement in core PCE (up 40 bps since Feb-2026), however, suggests that much of the recent headline acceleration is being driven by volatile food and energy components rather than broad-based price pressures.

Critically, both measures remain well above the Fed’s 2% inflation target, with headline PCE now more than double that benchmark. This resurgence in May—after inflation appeared to be converging toward target levels in 2024 and parts of 2025—complicates the Federal Reserve’s policy outlook, though the more recent June manufacturing PMI reading in Figure 6 suggests price pressures may be easing.

Figure 5: Y/Y PCE reading at highest level in three years
 

Source: U.S. Bureau of Economic Analysis

June’s ISM Manufacturing PMI at 53.3 (Figure 6) marks six consecutive months of expansion after a 10-month slump, with New Orders holding firm at 56.0—a signal that demand remains intact and factories should stay busy in the near term. Meanwhile, the Manufacturing PMI Prices Index dropped sharply from 82.1 to 73.0, suggesting supply chain pressures are finally easing; however, at 23 points above neutral (i.e. 50), input costs are likely still running hot enough to squeeze margins and keep goods inflation elevated. The combination of continued demand with cooling prices, however, signals manufacturers may be experiencing relief without a collapse in orders. And on the manufacturing employment front, PMI Employment contracted for the 33rd straight month at 49.7 but is now just 0.3 points from expansion—the closest since September 2023. June’s ISM report includes 64% of panelists stating they are now hiring versus 34% at the start of the year, indicating that labor market weakness may have run its course. These are positive signs, though tariff uncertainty and geopolitical tensions (cited by 48% of respondents in the ISM report) remain wildcards that could stall the recovery.

Figure 6: Input Costs Remain High, But Demand Holds
 

Source: ISM, FactSet

The common thread across these developments is that equity markets have largely looked through the immediate shock from the U.S.-Iran conflict, supported by improving energy conditions and stronger earnings expectations—particularly in AI-related sectors. But with inflation reaccelerating, labor data somewhat benign, and manufacturing still showing pockets of resilience, the next leg of the market narrative may increasingly depend on how the Fed interprets this mix. 

Fed funds futures currently imply a gradual tightening path from the present 350–375 bps target range. As of July 7th, markets see only a 26% chance of a rate hike at the upcoming July 29th meeting, with the implied rate at 3.70%. However, expectations shift meaningfully over the following months—by the December 9th meeting, one full rate hike is priced in, bringing the implied rate to 3.94%. Looking further ahead, markets anticipate the implied rate to reach 4.01% by March 2027.

Figure 7: Implied Fed funds rate and number of hikes/cuts
 

Source: FactSet as of Jul-7, 2026

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