Good morning. U.S. markets closed lower Tuesday as rising Middle East tensions and cautious investor sentiment ahead of the Fed meeting weighed on equities. Oil prices surged more than 4% following renewed attacks between Israel and Iran, with speculation growing that the U.S. may become more directly involved. Crude’s strength lifted the energy sector, but most S&P sectors finished in the red. The 10-year Treasury yield fell to 4.39% as investors sought safety, while the dollar gained. All eyes now turn to the Fed’s rate decision and updated economic projections due Wednesday afternoon.

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Arab Nations Break with West on Iran Conflict
The Economist reports that many Arab governments are refraining from condemning Iran, viewing Israel's airstrikes as an unjustified provocation. The article highlights growing divergence between Western and Middle Eastern narratives amid the conflict. It suggests that regional alignment is shifting, with several Arab states drawing closer to China while distancing from U.S. influence. These shifts could complicate diplomatic resolutions and undermine Western efforts to isolate Iran. The report also touches on how energy dependencies factor into regional foreign policy.

Senate Edits Tax Bill as Budget Deadline Looms
The WSJ details a flurry of negotiations in the Senate as lawmakers try to finalize the sweeping GOP tax package. Key changes include phased-in corporate rate cuts and a compromise on EV credits. The bill faces resistance from both fiscal hawks and Democrats, making passage uncertain. Lawmakers are racing the clock ahead of the July recess, with potential market implications if gridlock persists. The article underscores how fiscal policy is becoming a more prominent theme in investor discussions.

Oil Tanker Collision in Hormuz Raises Supply Fears
Two crude carriers collided in the Strait of Hormuz, adding logistical strain to already rattled oil markets. WSJ reports no major spills, but analysts warn the incident highlights infrastructure vulnerabilities in a critical global chokepoint. The timing—amid rising geopolitical tensions—further amplifies market anxieties around oil supply. Tanker insurance costs are expected to spike, and rerouting could pressure transport margins. While immediate supply disruption appears limited, risk premiums are rising.

Traders Rethink Rate Cuts Amid Tariffs and War Risk
MarketWatch notes a shift in market expectations: traders now see a rising chance the Fed may only cut once—or not at all—in 2025. Geopolitical volatility and the inflationary effect of new tariffs are muddying the Fed’s outlook. Some analysts worry that inflation could reaccelerate if supply chains are further disrupted. At the same time, weakening consumption data is pushing others to argue for cuts sooner. The article frames the uncertainty as a key reason behind heightened market caution.

Fed to Hold Rates as Growth, Trade Uncertainty Linger
Bloomberg previews today’s FOMC meeting, where officials are expected to maintain current rates while signaling caution due to inflation uncertainty, trade conflict fallout, and fiscal pressures. Updated projections will be closely watched for adjustments to the rate path for 2025. Most economists still expect one or two cuts this year, though fewer now anticipate an early move. The article suggests the Fed may be waiting for clearer data on consumer resilience and price pressures. Policymakers appear increasingly focused on risk management rather than aggressive policy shifts.

Treasury Yields Fall on Trump’s Escalation Comments
CNBC reports on Tuesday’s drop in Treasury yields following President Trump’s remarks about possible U.S. involvement in the Israel-Iran conflict. The bond rally reflects risk aversion heading into the Fed’s closely watched press conference. The 10-year yield dropped by 6 basis points, marking one of the sharpest single-day moves in recent weeks. Markets are increasingly pricing in elevated geopolitical premiums. Investors are looking to safe-haven assets as uncertainty builds around both war and monetary policy.

Geopolitical developments drove market action Tuesday as President Trump hinted at possible U.S. escalation in the Middle East conflict. Crude oil surged, the dollar strengthened, and gold prices edged lower. Stocks declined, led by consumer discretionary, healthcare, and materials, while energy and financials outperformed. Retail sales data for May showed weakness, but control-group sales rose 0.4%, matching estimates and supporting the view that consumer demand remains intact. Fed policy and global macro uncertainty continue to dominate the investment landscape.

Meanwhile, import and export prices for May were mixed, with import prices flat and export prices falling 0.9%. The data suggests trade-related dislocations may be impacting pricing power for U.S. goods abroad. Industrial production also declined 0.2% in May, adding to the picture of a slightly softer manufacturing environment heading into summer. Despite this, forward-looking indicators like discretionary spending and household balance sheets continue to point to consumer-driven economic resilience.

Breadth in equity markets was notably weak throughout the day, with decliners outpacing advancers by nearly 5:2. Small caps underperformed large caps, while sector leadership narrowed to just energy and financials. Market participants remained on edge as they await clarity from the Fed, especially in light of shifting rate-cut expectations. With global uncertainty running high, investors appear increasingly sensitive to headline risk and are positioning cautiously into the week’s key policy announcements.

The Fed holds the spotlight today as markets brace for updated guidance on inflation, growth, and rates. Volatility remains elevated, but U.S. consumer resilience and solid labor trends offer ballast. With geopolitical risk simmering, it’s a time for discipline—not panic.