Wall Street’s record-breaking rally hit a pause on Monday as renewed concerns over the stalled U.S.-Iran peace process injected fresh uncertainty into markets already grappling with rising oil prices and the prospect of stickier inflation.

The pullback was modest, but it reflected growing investor caution after weeks of relentless gains that pushed the S&P 500 and the Nasdaq Composite to successive record highs.

Markets initially opened mixed after U.S. President Donald Trump swiftly rejected Iran’s response to a U.S. peace proposal, reviving fears that the 10-week-old conflict could drag on and prolong disruptions around the Strait of Hormuz, one of the world’s most critical oil shipping chokepoints.

Brent crude climbed sharply again, extending a run that has kept energy markets on edge and complicated the inflation outlook globally.

The market’s resilience, however, remains striking. Even with oil prices elevated and geopolitical risks intensifying, equities have continued to push higher in recent weeks, driven largely by surging enthusiasm around artificial intelligence, blockbuster technology earnings, and signs that the U.S. economy remains sturdier than many investors expected earlier this year.

By mid-morning trading, the Dow Jones Industrial Average was little changed, slipping just 3.54 points to 49,605.62. The S&P 500 gained 0.15% to 7,410.31, while the Nasdaq Composite edged up 0.04% to 26,257.27 after both indexes touched fresh all-time highs earlier in the session.

“The worry list is long, but the economy keeps proving the bears wrong,” said Robert Edwards, chief investment officer at Edwards Asset Management.

“Big tech has regained its leadership, backed by solid and growing revenue and earnings. These names sit at the center of every major secular theme.”

Oil shock collides with AI-driven optimism

The latest market tension underpins the increasingly fragile balance investors are trying to maintain between geopolitical risk and the AI-fueled growth narrative dominating Wall Street. For much of the year, investors have largely brushed aside concerns over war in the Middle East, betting instead that artificial intelligence investment, strong corporate profits, and resilient consumer spending would continue powering the economy higher.

That optimism has been reinforced by an earnings season that has broadly exceeded expectations. More than 80% of companies reporting results have beaten profit forecasts, with technology and semiconductor firms once again driving much of the upside momentum.

The AI trade remains the market’s dominant force. Shares of Intel rose another 3.5% Monday after surging nearly 14% on Friday following reports of a preliminary chip manufacturing agreement with Apple. Qualcomm jumped 8.6% to a record high, underscoring continued investor appetite for semiconductor and AI-linked names.

The gains reflect growing expectations that AI infrastructure spending will remain enormous for years, benefiting companies across the semiconductor supply chain, cloud computing, and networking sectors. Investors are also awaiting earnings later this week from Cisco and Applied Materials, while heavyweight reports from Nvidia and Walmart later this month could further shape sentiment.

Yet the longer the Iran conflict drags on, the greater the risk that energy prices begin undermining the broader economic expansion that has supported the rally. Investors increasingly worry that persistently high oil prices could reignite inflationary pressures just as markets had started pricing in eventual Federal Reserve easing.

Inflation data now becomes the market’s next major test

Attention is now shifting toward Tuesday’s U.S. consumer price index report, which could become the next major catalyst for markets. Economists expect inflation to edge higher in April as higher fuel and transportation costs begin filtering through the economy.

Additional producer price data and retail sales figures later this week will offer further insight into whether consumers and businesses are beginning to feel more strain from the geopolitical shock. The stakes are high because markets have already sharply reduced expectations for Federal Reserve rate cuts this year.

Strong payroll data released last week supported the view that the U.S. labor market remains resilient, giving the Fed more room to keep interest rates elevated if inflation remains stubborn.

But that dynamic is believed to have created a more complicated environment for investors. The economic resilience supports corporate earnings and stock valuations, while stronger growth combined with higher oil prices risks delaying monetary easing and tightening financial conditions.

Energy and materials stocks led gains Monday, reflecting those inflation concerns. The S&P 500 energy sector rose 1.5%, while the materials sector gained 1.3% alongside rising precious metal prices.

Airline stocks, however, came under pressure as investors worried that higher fuel costs would squeeze margins. Shares of Southwest Airlines, Delta Air Lines, Alaska Airlines, and United Airlines fell between 1.8% and 2%.

Geopolitics returns to the center of markets

Beyond inflation and earnings, investors are also closely watching preparations for Trump’s meeting later this week with Chinese President Xi Jinping. The summit is expected to cover Iran, Taiwan, artificial intelligence, nuclear weapons, and a possible extension of a critical minerals agreement between the two countries.

The discussions come at a time when global markets are increasingly being shaped by geopolitical fragmentation, supply-chain security, and industrial policy rather than traditional economic cycles alone.

The biggest question for Wall Street is whether the market’s AI-driven optimism can continue overpowering mounting geopolitical and inflation risks. So far, investors have repeatedly chosen growth over fear. But with oil climbing again, inflation data looming, and the Middle East conflict showing little sign of resolution, economists believe that markets may soon face a tougher test of that confidence.

A JPMorgan Chase-led syndicate of banks sharply reduced its commitment to one of the largest publicly traded business development companies (BDCs) in the private credit space, just days before co-manager KKR stepped in with a substantial rescue package aimed at stabilizing the beleaguered fund.

FS KKR Capital Corp., co-managed by KKR and Future Standard, announced Monday that KKR would inject $150 million in new equity through cumulative convertible perpetual preferred stock and commit another $150 million via a tender offer to buy common shares at $11.00 each from investors seeking liquidity. The fund labeled these “Strategic Value Enhancement Actions.” In tandem, FSK’s board authorized a separate $300 million open-market share repurchase program, and KKR agreed to waive half of its incentive fees for the next four quarters.

These moves came after the JPMorgan-led group cut FSK’s senior secured revolving credit facility by $648 million (about 14%) on May 8, reducing total commitments to approximately $4.05 billion from $4.70 billion. Some lenders reportedly exited the syndicate entirely.

The amendment also raised interest rates (spreads) on the remaining facility for extending lenders and lowered the minimum shareholders’ equity covenant floor from roughly $5.05 billion to $3.75 billion. While this provides more cushion against defaults, it signals lenders’ concerns that asset values could decline further. JPMorgan acted as administrative agent, with ING Capital as collateral agent.

FSK has become a prominent symbol of strain in the private credit sector. Its shares have plunged nearly 50% over the past year and trade at a steep discount to net asset value (NAV). In March, Moody’s downgraded the fund’s ratings to junk status (Ba1 from Baa3), citing asset quality deterioration that outpaced peers, weaker profitability, and greater NAV erosion.

In the first quarter of 2026, FSK reported losses of $2 per share, totaling roughly $560 million, driving a roughly 10% decline in NAV. Non-accrual loans (those no longer generating interest income) rose sharply to 8.1% of the portfolio on a cost basis (4.2% at fair value) at quarter-end, up from 5.5% (3.4% at fair value) at year-end. Key problem credits include loans to software company Medallia and dental services provider Affordable Care.

“Our first quarter decline in net asset value was driven by investments which have impacted prior quarters, certain new non-accrual assets, and the impact of market-driven spread widening,” CEO Michael Forman and President Daniel Pietrzak said in the release.

However, they added a note of optimism: “We believe FSK’s current stock price underappreciates the long-term value associated with FSK’s investment portfolio and the KKR Credit platform.”

Software and related services remain the fund’s largest exposure, comprising 16.4% of the portfolio at year-end. Executives have conducted AI risk assessments across holdings, reflecting broader concerns about technology disruption in the sector.

The troubles have already forced distribution cuts. FSK reduced its quarterly dividend in prior periods, with the board declaring $0.42 per share for the second quarter—aligned with paying out 100% of GAAP net investment income. The stock has offered high yields (recently in the mid-teens) even after cuts, but at the cost of significant principal erosion for shareholders.

Investor frustration has escalated into legal action. A proposed class-action lawsuit filed in early May in Pennsylvania alleges that FSK and executives downplayed bad loans while promoting portfolio stability and attractive dividends. The suit covers investors who purchased shares between May 2024 and February 2026.

Stress Testing Private Credit

FSK’s challenges highlight vulnerabilities across the roughly $2 trillion U.S. private credit market, which expanded rapidly in a low-rate environment but now faces higher-for-longer interest rates, refinancing pressures, and sector-specific risks. The Financial Stability Board recently warned that the asset class remains untested in a severe downturn, pointing to leverage, liquidity mismatches in semi-liquid structures, interconnections with banks and insurers, and concentrations in areas like software.

Redemption pressures have mounted at some funds, with occasional gates or liquidations. FSK’s experience, banks tightening credit, ratings downgrades, heavy markdowns, and manager intervention, illustrate how liquidity and covenant relief can come at the price of higher costs and signaling further downside.

As a middle-market lender formed through a 2018 merger, FSK once ranked as the second-largest publicly traded BDC. It now confronts a painful transition: executives have signaled expectations of a smaller, better-positioned balance sheet over time. The fund maintains substantial liquidity, with cash and availability under financing arrangements, but faces over $2 billion in unsecured debt maturities in 2026–2027.

JPMorgan has taken broader defensive steps, including marking down private credit exposures on its own books, many tied to software firms potentially disrupted by artificial intelligence.

While KKR’s intervention and buybacks aim to restore confidence and narrow the share price discount, analysts expect sustained improvement to hinge on stabilizing the legacy portfolio and navigating an environment of elevated defaults and cautious bank lending.

With President Donald Trump set to meet Chinese President Xi Jinping this week, a broad coalition spanning the American auto sector, steelmakers, unions, and politicians from both parties is pressing him with one clear demand: keep Chinese cars out of the United States.

The intense lobbying effort stems from fears that Chinese automakers, backed by massive state support, enormous scale, superior EV technology, and rock-bottom prices, could overwhelm domestic producers and foreign competitors alike, eroding the heart of U.S. manufacturing. According to Reuters, this pushback gained urgency after Trump’s comments in January to the Detroit Economic Club, where he said it would be “great” if Chinese automakers built plants in the U.S. and employed Americans.

He added, “I love that. Let China come in, let Japan come in.”

Those remarks sent ripples of concern through an industry that has long fought to protect the American market with strict data security measures and high tariffs on Chinese electric vehicles. Automakers, suppliers, dealers, and their allies have now unified in opposition, warning that any opening would repeat damaging patterns already visible abroad.

Democratic Senator Elissa Slotkin of Michigan took the message directly to the Detroit forum on Thursday, per Reuters. She urged Trump not to strike any deal with Xi that would allow Chinese investment, leading to Chinese-brand cars on U.S. dealership lots.

“Please don’t make a bad deal,” Slotkin said.

She joined Republican Senator Bernie Moreno of Ohio in sponsoring the Connected Vehicle Security Act, which would codify and strengthen data protections against Chinese vehicles, making any reversal by the administration far more difficult.

A companion House bill goes further by also banning industry partnerships with Chinese companies.

Congressional aides say the legislation enjoys broad support and could pass this year, possibly attached to a transportation spending bill.

Representatives Debbie Dingell, a Democrat, and John Moolenaar, a Republican, both from Michigan’s auto-heavy districts, sponsored the House version and stated jointly: “Every vehicle on American roads is a rolling data collection device, capturing information on location, movement, people, and infrastructure in real time, and we cannot allow Chinese vehicles or components to be a part of that system.”

Seventy-four House Democrats and 52 House Republicans have signed letters imploring Trump to bar Chinese automakers from the American market.

U.S. Automakers Unite Against China

The U.S. auto industry has displayed rare unity on the issue. In March, groups representing American and foreign-brand automakers, car dealers, and parts manufacturers warned the administration that China’s drive to dominate global auto production and enter the U.S. market “pose a direct threat to America’s global competitiveness, national security and automotive industrial base.”

Steel industry groups sent a similar letter on April 30. Even the Information Technology and Innovation Foundation, which has criticized some past Trump tariffs on Chinese goods, endorsed the ban legislation.

ITIF Vice President Stephen Ezell explained: “Chinese automakers are not normal market competitors. Their EVs are the product of decades of state-backed mercantilism designed to help China capture global leadership in advanced industries.”

He added, “Once China’s subsidized firms are embedded in the U.S. market, the economic and national security damage would be far harder to reverse — and it would not be limited to Detroit.”

Administration officials have signaled continuity so far. U.S. Trade Representative Jamieson Greer said in Detroit in April that there were no plans to change the connected car rule and that autos were not on the agenda for the summit with Xi.

Commerce Secretary Howard Lutnick has ruled out Chinese investments in the U.S. autos sector. Still, Scott Paul, president of the Alliance for American Manufacturing, expressed ongoing worry that Trump, who frequently speaks of drawing more auto plants to America, “has left wiggle room in dealing with the auto sector.”

Any approved plant would take two to three years to start production, shifting long-term consequences to a future administration.

Industry leaders point to troubling precedents in Europe and Mexico. Chinese brands doubled their European market share to 6% last year, capturing 14% in Norway, 9% in Italy, 11% in Britain, and 9% in Spain. Consumer interest in Chinese EVs has grown as gasoline prices rise amid the Iran war. Canada now imports 49,000 Chinese EVs annually, while 34 Chinese brands hold about 15% of the Mexican market at prices far below U.S. levels.

Geely’s EX2 EV sells for roughly $22,700 in Mexico—more than double its Chinese domestic price but well under the $38,630 U.S. starting price of the cheapest Tesla Model 3. Even Toyota struggles with the pricing pressure there.

Toyota Motor North America division manager David Christ said, “Obviously there’s some level of government support, or else they couldn’t transact at that price. So it has a huge impact on business.”

With Kelley Blue Book reporting average U.S. vehicle list prices now exceeding $51,000 amid an affordability crisis, many fear American consumers could be drawn to far cheaper Chinese options.

As the Trump-Xi meeting approaches, the American auto sector and its bipartisan supporters are making their position unmistakably clear: opening the door even slightly risks irreversible damage to a vital industry, national security, and the broader manufacturing base that has long powered the U.S. economy.