The Federal Reserve's preferred inflation gauge climbed to a three-year high in May, while Micron Technology Inc. delivered a significant earnings beat and crude oil prices collapsed. The Core Personal Consumption Expenditures (PCE) price index, which excludes food and energy, rose 3.4% year-over-year, up from 3.3% in April. This persistent price pressure has bolstered investor bets on future interest rate increases, with markets pricing a near-certain hike by October 2026.

Inflation and Consumer Spending

The headline PCE price index rose 0.4% month-on-month and 4.1% year-over-year in May, marking the highest annual rate since April 2023. Despite these inflationary headwinds, consumer spending remained robust. Personal spending climbed 0.7% month-over-month, or $156.1 billion, beating estimates of 0.6%. Personal income also rose 0.7%, its strongest gain since July 2025. Adjusted for inflation, real consumer spending increased 0.3% in May after a flat reading in April.

Q1 GDP Revision

The Bureau of Economic Analysis reported that the US economy grew at a 2.1% annualized rate in the first quarter, revised up from the second estimate of 1.6%. This marked a sharp acceleration from the 0.5% growth seen in the fourth quarter of 2025. The upgrade was driven largely by a downward revision to imports. Final first-quarter real consumer spending was cut to 0.5%, and real final sales to private domestic purchasers were revised down to 1.7%.

Market Movers: Oil and Tech

West Texas Intermediate crude oil traded below $70 a barrel as the reopening of the Strait of Hormuz reduced the war-risk premium. Oil is down more than 20% on the month, on pace for its worst monthly performance since March 2020. Persian Gulf exports recovered to roughly 75% of prewar levels.

In equity markets, Microsoft Corp. is down about 18% on the month, its worst June since 2000, as investors dumped the stock over AI capex fears. Oracle Corp. has fared even worse, plunging 30% in June and erasing more than $300 billion in market value after warning of $70 billion in fiscal 2027 capex. The Roundhill Magnificent Seven ETF is heading for its worst month since inception.

Micron's Memorable Beat

Micron Technology Inc. posted fiscal third-quarter revenue of $41.5 billion, up 346% on the year. Gross margin hit 84.6%. Earnings per share came in at $24.67 versus $1.68 a year ago, nearly a 15-fold increase. Shares jumped 15% on Thursday as the stock saw multiple price-target hikes. Apple Inc. raised prices across its product line this week to offset surging memory costs.

Sentiment and Rates

The University of Michigan's final June Consumer Sentiment rose 9% to 48.9, yet sentiment is still 19% below a year ago. Long-run inflation expectations fell back from 3.9% to 3.4%. The Treasury market saw the policy-sensitive 2-year yield fall about 5 basis points to 4.10%.

The U.S., Israel, and Lebanon have signed a trilateral framework agreement. The Israeli Ambassador to the U.S. stated that the framework is performance-based.

The agreement involves the United States, Israel, and Lebanon. The Israeli Ambassador to the U.S. characterized the trilateral framework as being performance-based.