President Donald Trump's prediction that the Iran war would drive the stock market down 20% to 25% may still materialize despite recent all-time highs in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. The ongoing closure of the Strait of Hormuz has removed a fifth of the world's daily petroleum liquids supply, fueling inflation that has spread beyond energy into core personal consumption expenditures, which remain stuck at 3.3% to 3.4%. Federal Reserve Chair Kevin Warsh faces mounting pressure to hike rates after three dissenting votes at the latest FOMC meeting, the first such challenge to a Fed chair in 56 years, which could slow AI-driven growth and rerate historically high valuations. The S&P 500's Shiller P/E ratio nearly hit 43 in early June, a level exceeded only before the dot-com bust, and all five prior instances when the CAPE ratio surpassed 30 were followed by declines of 20% or more.
Fed Chair faces pressure to hike rates, which would raise the effective federal funds rate.
Rate hike pressure and inflation concerns likely push 10Y yields up, lowering bond prices.
