Here is Schwab's early look at the markets for Wednesday, June 18:

(First, an important note: U.S. markets are closed Thursday, June 19, in observance of the Juneteenth holiday. The Schwab Market Update will return on Friday, June 20).

Today's Federal Reserve meeting could play second fiddle to Middle East developments amid concerns the U.S. might become involved in the fighting.

There's little chance of a rate cut when the Fed meeting ends at 2 p.m. ET, but investors are on the edge of their seats awaiting fresh projections on the economy and rate path from the central bank.

They're also on tenterhooks after President Trump's social media posts late yesterday spooked Wall Street and sent stocks and Treasury yields sharply lower. Trump hinted at possible U.S. involvement, and Vice President Vance said Trump may decide the U.S. needs to "take further action to end Iranian enrichment," the Wall Street Journal reported.

"Rising Iran/Israel tensions persist and are generating a lift in volatility, but not excessively so, at least not yet," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

The Cboe Volatility Index (VIX) climbed 10% yesterday to above 21 from lows below 19 late last week, but, as Peterson said, those aren't excessive levels. As recently as April, VIX was above 50. However, a U.S. role in the war would conceivably raise VIX and potentially bring more volatile trading.

The U.S. market week is shortened by Thursday's Juneteenth holiday, with no trading tomorrow. The one-day break affects the data calendar, with weekly initial jobless claims expected at 8:30 a.m. ET today, rather than Thursday. Claims have been near 250,000 recently, up from their previous range of 220,000 to 230,000. Analysts expect initial claims to rise to 253,000 from 248,000 the prior week, according to Briefing.com. Continuing claims are also being tracked after reaching new three-year highs above 1.95 million last week.

May U.S. retail sales plunged a worse-than-expected 0.9%, reviving worries about consumer demand in a report that was mixed under the hood. The weak headline data, along with war fears, helped send the benchmark 10-year Treasury note down seven basis points Tuesday to 4.39%.

Analysts had expected a 0.6% drop, and retail sales excluding autos fell 0.3%. The government also lowered April retail sales figures. However, the so-called "control group" that's included in the government's gross domestic product (GDP) calculation rose 0.4% in May compared with a 0.3% expectation.

"It was a mixed report," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research. "The control group was up more than expected but the advanced figure fell. Motor vehicles and parts were a big contributor to the decline." It's possible the weakness in automobiles could reflect demand getting pulled forward to earlier this year ahead of expected tariffs.

The Fed may be more likely to watch the control group figure from the retail sales report, not the headline, due to the control group's impact on GDP. The control group excludes sales from auto dealers, building materials stores, and gas stations. Interestingly, restaurant and bar sales fell 0.9%, the worst for that category since February 2023 and another sign of possible slowing services industry demand. "It looks like consumers are pulling back on discretionary spending but still shopping online," said Kathy Jones, chief fixed income strategist at Schwab.

Shorter-term Treasuries are worth watching after the Fed meeting to see if they react to the updated Fed Summary of Economic Projections. These will outline the central bank's thinking on inflation, economic growth, and the possible rate path. Fed Chairman Jerome Powell's press conference could also help shape investor sentiment.

"Obviously no rate cut is expected, but markets are expecting two 25-basis point cuts this year, so any changes to the dot plot will likely be the focus," Schwab's Peterson said, referring to the so-called "dot plot" that maps individual Fed policy maker's predictions of where rates will be over the next few years.

All it would take is two policy makers who predicted two rate cuts in the March dot plot to change their projections to one cut and the overall average would fall to one from two.

Investors may also examine the Fed's inflation projections after recent data uncovered signs of disinflation. Goods inflation, for instance, is up modestly even with the impact of tariffs. And services inflation has slowed. New evidence of services weakness popped up in yesterday's retail sales report as May sales at bars and restaurants sank 0.9%, the worst decline there since February 2023. This follows signs of services disinflation in recent government inflation reports.

In March, the Fed's median projection for U.S. 2025 gross domestic product (GDP) growth fell to 1.7% from 2.1%. Its inflation estimate rose to 2.7% from 2.5%. And its core inflation estimate, which extracts volatile food and energy, climbed to 2.8% from 2.5%. Any drops in these numbers today would likely be welcomed by the market.

Odds of a rate cut in July were around 15% late Tuesday according to the CME FedWatch tool. Investors seem more certain the Fed could cut rates in September, building in roughly 62% chances. Futures trading shows a strong likelihood of two rate cuts before the year ends. Odds could change quickly based on the Fed's new projections today.

Crude oil (/CL) rebounded almost 5% Tuesday as tensions rose in the Middle East, and energy led all S&P 500 sectors. Aside from the energy sector, investors generally stepped back from riskier positions and appeared to seek perceived safety in assets like the dollar and Treasuries, sending 10 of 11 S&P 500 sectors lower.

Solar energy stocks plummeted Tuesday after the U.S. Senate's version of the budget bill kept provisions to cut renewable energy incentives. But defense and energy company firms did well Tuesday, and some semiconductor companies also rose. Magnificent Seven stocks, however, dropped across the board. The sharpest drop there was Tesla, down nearly 4%. Travel stocks that rose Monday on hopes for peace talks slumped.
"Technicals remain bullish on an intermediate term basis, but near-term momentum is slowing (as evidenced by RSI) and near-term resistance on the S&P 500 index appears to be in the 6,050-6,100 area, so it may be tough to push to fresh all-time highs without some kind of a bullish catalyst," Schwab's Peterson said.

RSI, or the Relative Strength Index, is a closely followed momentum indicator and has been slipping lately for the S&P 500.

One possible technical support area could be last Friday's intraday SPX low near 5,963. The old support/resistance line of 5,900 is another potential support point, and below that there's the 200-day moving average of 5,810. The SPX hasn't been below that moving average in more than a month. It may be positive from a technical standpoint that the SPX didn't make much of an attempt to test last week's low Tuesday, but if the war situation worsens, technical matters may play less of a role.

The Dow Jones Industrial Average® ($DJI) dropped 299.29 points Tuesday (-0.70%) to 42,215.80; the S&P 500 index (SPX) fell 50.39 points (-0.84%) to 5,982.72, and the Nasdaq Composite® ($COMP) eased 180.12 points (-0.91%) to 19,521.09.