Will The Fed Kill The S&P 500’s Relief Rally?

The S&P 500 closed Monday at 7,554.29, up 1.65%, as the Nasdaq surged 3.1%. This sharp rally appeared closely tied to geopolitical developments. On Sunday, June 14, President Trump announced the US-Iran peace deal via Truth Social, simultaneously authorizing the toll-free reopening of the Strait of Hormuz and removing the naval blockade. Consequently, WTI crude dropped roughly 5% to around $80, while Brent fell to $83, their lowest levels in months. The S&P now walks into one of the most consequential Fed weeks in years with oil retreating, inflation still elevated, and a new Fed Chair at the podium for the first time.

Image by Horst Schwalm from Pixabay

Does the Iran deal actually change the Fed’s calculus?

Partially, but not completely.

May CPI printed at 4.2% year-over-year, and producer prices on goods and services rose even faster at 6.5%. The core of this inflation problem was energy. One analyst noted that crude falling to $80 is “a strong signal, given that this is an FOMC week, that we don’t need to raise rates, and that the price pressure should alleviate relatively quickly.”

But here is the catch: the deal is unsigned. The formal signing ceremony is scheduled for Switzerland on June 19, two days after the FOMC decision lands. Infrastructure damage to downstream facilities and LNG export capacity, including those at Ras Laffan, means a return to business as usual will take time even under the most optimistic scenarios. The Fed is unlikely to fully price in a supply shock reversal until the infrastructure recovery is firmly underway.

What will Warsh actually do tomorrow?

A rate hold is widely anticipated by the market. The FOMC is expected to keep the federal funds rate at 3.50% to 3.75%, with economists anticipating a shift from an easing bias to a neutral policy stance.

What remains uncertain is everything else Warsh says.

As a noted inflation hawk in the past, Warsh has been highly critical of standard core PCE measurements, dismissing them in favor of alternative metrics like trimmed-mean averages. He also arrives at the podium as a strong advocate for bank deregulation and streamlined Fed communication. He has stated he would abandon forward guidance entirely – the Fed’s established way of signaling future rate direction – and declined at his confirmation hearing to commit to continuing regular press conferences.

Market consensus suggests the quarterly dot plot’s lone remaining 2026 rate cut is highly likely to be removed when updated forecasts land. The bigger question is whether the dot plot itself survives Warsh’s push for streamlined communication. Odds of a rate hike by year-end are now 52% on the prediction markets platform Kalshi. If Warsh eliminates or restructures the dot plot, the equity market loses its favorite Fed compass overnight.

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How does this hit the S&P 500?

Two forces are pulling in opposite directions right now, creating distinct tactical environments for different pockets of the market.

The geopolitical relief trade is real. Energy traders had already been pricing in a deal for weeks, which is precisely why oil was trading below $90 rather than $120, given the prolonged Strait closure. The S&P 500 had already posted strong year-to-date gains, with tech and AI momentum providing the foundation before the Iran headlines.

If Warsh maintains communication continuity tomorrow, this relief trade is positioned to re-ignite mega-cap tech momentum, where massive free cash flows shield companies from immediate interest rate pressures. However, if macroeconomic pressures persist, questions remain about how much premium is already baked into these premium software multiples. For a tactical assessment of how to play this sector under current valuation levels, see our recent analysis: Is The AI Boom Already Priced Out of Microsoft Stock?

The Warsh uncertainty trade, however, cuts the other way. Bond yields have recently jumped to one-year highs on inflation concerns as markets shifted to price in a potential rate hike. A hawkish dot plot revision combined with the abandonment of forward guidance would immediately spike the 10-year Treasury yield, forcing a compression of equity valuation multiples.

While mega-cap tech can rely on its balance sheet strength to survive higher-for-longer rates, this scenario creates severe headwind for capital-intensive, high-beta growth sectors that rely on frequent capital market access to fund long-term infrastructure. We see this acute vulnerability playing out in the commercial space economy, which is already undergoing a structural liquidity shift following last week’s historic $75 billion SpaceX listing. If Warsh removes the market’s interest rate compass tomorrow, smaller, capital-hungry players in this sector face an immediate cost-of-capital squeeze. For a breakdown of which growth names can endure a tighter credit environment, read: Can RKLB Stock Survive The SpaceX IPO Gravity Well?

What is the most likely near-term scenario?

The Iran deal brought the market a one-day relief surge. Major banks forecast elevated inflation readings to persist into the second half of 2026, well above the Fed’s 2% target. That divergence means Wednesday’s press conference, not the rate decision itself, is the real event.

If Warsh signals a neutral-to-hawkish stance, drops the easing bias, and hints at dot plot restructuring, investors should prepare for the possibility that the initial equity relief from oil’s decline could face immediate pressure and fade – with long-duration growth bearing the brunt of the selloff. If he is more measured and keeps communication continuity intact for now, the macro relief rally has room to extend across both tech and small-cap growth.

The market enters this week having seemingly absorbed much of the Iran premium. What has not been fully priced in is a Fed chair who may rewrite the rules of Fed communication from the podium tomorrow.