The Disinflation
Summer

The macro picture entering July is the clearest it has been since the Iran war began in February — and paradoxically, that clarity is what makes the next few months so treacherous to navigate. The disinflation thesis is now well-established: the Strait of Hormuz is open, oil is below $70, gas is at $3.90 and falling, and May's core PCE at 3.4% is almost certainly the peak of the energy-shock inflation cycle. What is less established is the timeline from peak to resolution — and what the market does while it waits. The June data won't arrive until mid-July. July's won't come until August. The Fed's September meeting is the first live decision point. Between now and then, markets must contend with AI cost pressures that are beginning to show up in corporate pricing, a SpaceX stock in free-fall from its all-time high, and an NFP print on July 3 that will set the tone for the July 4 holiday week.

The Inflation Arc: Where We Are and Where It Goes

The 2026 inflation spike had a clear cause and a clear cure. The cause: the Iran war's disruption of the Strait of Hormuz from February through June added roughly 1.5 percentage points to CPI and PCE each month through the energy component alone. The cure: the MOU signed June 18, the naval blockade ended, Hormuz traffic resuming, and WTI falling from its 2026 peak of roughly $110+ down through $100, $90, $80, and now below $70. At current oil prices, Edward Jones estimates the energy contribution to CPI will moderate from the full 1.5 points in May to roughly one percentage point in July and continue fading through fall.

The mathematics of that trajectory are straightforward. If energy stops adding to inflation and core continues at its current 3.3–3.4% pace, headline CPI should fall from 4.2% toward 3.0–3.5% by August or September. If core also moderates — and services inflation ex-energy has shown no signs of reacceleration — the path toward the Fed's 2% target becomes visible, even if distant. This is why Morgan Stanley's Ellen Zentner used the phrase "hold for quite some time, until conditions allow for a cut." The trajectory is toward easing, not hiking. It is just slow.

The AI Cost Problem That Didn't Go Away

One of the week's most underappreciated developments was the decision by both Apple and Microsoft to announce price increases on consumer hardware and software products, citing higher AI component costs. Apple raised prices on its computers and iPads. Microsoft raised Xbox pricing. These are the first visible pass-throughs of AI infrastructure inflation to consumer prices — and they represent a structural inflation headwind that exists entirely separately from the energy shock.

Kevin Gordon at Schwab flagged this dynamic explicitly on social media this week, noting that CPI software prices have risen at a 59% annualized pace over the past six months. The AI buildout is not just an investment story — it is an input cost story. Data center construction, GPU procurement, energy consumption for compute, and now component pricing in consumer devices: these costs are beginning to show up in the price index in ways that have nothing to do with the Strait of Hormuz. If core PCE's monthly acceleration from 0.24% to 0.37% in May was partly driven by this dynamic rather than pure energy pass-through, the Fed's path becomes more complicated than a simple Hormuz-reversal thesis would suggest.

SPCX: The Post-IPO Anatomy of a Shakeout

SpaceX's addition to the Russell 1000 after Friday's close is the next structural buying catalyst — passive funds tracking the index must purchase shares regardless of price. With only 4% of the company's market cap in free float, each wave of forced passive buying creates outsized price effects. Friday's 1.5%+ midday gain ahead of the inclusion reflects traders front-running that dynamic. But the shakeout from $225 to $154 in under two weeks has exposed the risk of momentum-driven positioning in a low-float name: the same mechanics that drove the stock to its all-time high can work violently in reverse when sentiment shifts. The first earnings report on August 6 is the next fundamental anchor. Until then, SPCX is a sentiment and supply/demand vehicle more than a valuation one.

The Global Macro Picture Heading Into July

The international backdrop for July is more constructive than it has been in months. Europe's energy cost relief from lower oil is translating into improved economic sentiment across the continent. The ECB, which held at 2.75% in June, is now widely expected to resume easing in Q3 as the Hormuz peace dividend filters through. Japan's challenge — managing a rate normalization cycle against an energy-driven wholesale inflation backdrop — eases as WTI falls below $70, reducing import costs for an economy that buys most of its energy on global markets. China, as the world's largest oil importer, is the quiet structural winner of the peace deal: lower energy input costs are a meaningful tailwind for an industrial economy still working through a domestic demand soft patch.

The dollar's strength — up more than 2.5% in June to multi-year highs above 101 on the DXY — is the one complicating factor. A strong dollar tightens financial conditions for emerging market borrowers and creates headwinds for U.S. multinationals reporting Q2 earnings. It also reflects the market's repricing of the Fed's hawkishness. If the disinflation thesis plays out as expected — oil at $65–$70 through the summer, CPI rolling over toward 3% by August — dollar strength should fade as September hike odds retrace. That dollar reversal, when it comes, is the catalyst for the next leg of the emerging market trade and a relief valve for S&P 500 earnings estimates.