Guns fire again at Hormuz over the weekend, and prices are this week’s test

Good morning. While U.S. markets were closed, the U.S. and Iran traded attacks again near the Strait of Hormuz. After Iran’s Revolutionary Guard hit a container ship, U.S. forces answered with a third round of strikes. Oil rose on Sunday and U.S. stock futures fell.

Even the facts are disputed. Washington says ships can pass, Tehran says the strait is closed, and actual tanker traffic has dropped sharply since Friday. Jet fuel jumped 10% in two days, raising worries about pricier summer flights.

Still, the market came in with strength. The S&P 500 is up 10.7% this year and sits just 0.45% below its record close. The rally leans more on AI than on oil, and Alphabet’s second-quarter capital spending is forecast to double from a year ago, to $44.9 billion. But in credit markets, the cost of insuring against default at big AI spenders such as Oracle, Meta and Amazon has risen across the board, a sign of caution.

Three things matter this week: the June consumer price index, Fed chair Kevin Warsh’s first testimony to Congress, and the start of second-quarter earnings with the big banks. In one economist survey, the Iran war hurt the economy less than feared, but inflation is expected to stay sticky for longer.