June 12, 2026

Paying the Price

On Wednesday, President Trump said Iran has taken too long to negotiate a deal and would “pay the price,” with new strikes aimed at Iran’s power plants and bridges. On Thursday, he reversed course calling off strikes and saying Iran had “approved talks.” On that news, stocks came roaring back like the New York Knicks in Game 4.

Wars have consequences beyond the battlefield. The conflict with Iran has helped keep energy prices elevated, and higher energy prices tend to show up eventually and unevenly in inflation prints. Headline CPI is up 4.25% year-over-year (core CPI 3.34%), the highest in three years. Iran may be paying a price in military terms, but U.S. consumers are paying a price in dollar terms. Put simply: wars are inflationary.

Inflation matters because it influences interest rates, and rates matter because they influence valuation. Rising inflation pressures yields higher. Higher yields can compress P/E multiples and reduce the market’s willingness to pay for future earnings. And we’ve seen that: forward P/Es have contracted from roughly 23.5x at the start of the year to about 20.5x today. Yet despite that multiple compression, the S&P 500 is still up about ~8% YTD. That’s the story of this tape: exceptional earnings have carried the market even as inflation and rising yields have increased headwinds.

What’s also changing quietly but importantly is leadership. From 2023 through 2025, the “Magnificent 7” rose 220% versus 43% for the other 493 S&P companies which is roughly 47% versus 13% annualized. Today, the narrative is shifting from “Mag 7 carries everything” toward “the other 493 matter again.” Earnings for the S&P 493 are improving, though they’re still projected to be roughly half the growth rate of the Magnificent 7 in 2026. . . . .

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