Stocks drifted lower last week as investors continued to digest the impacts of a growing conflict between Israel and Iran while closely watching how President Trump's tariffs could impact the US economy.

In the week ahead, geopolitics look set to dominate the conversation.

On Saturday, President Trump said the US military struck three sites in Iran, marking the first entry of the US strike since the conflict escalated on June 13. In a speech at the White House on Saturday night, Trump suggested the US could take further action if "peace does not come quickly."

The ripple effects of the US' involvement in this broadening conflict will almost certainly set the tone for markets in the early going this week and likely overshadow the latest economic data and earnings reports set for release.

Last week, the S&P 500 (^GSPC) fell 0.15%, while the Nasdaq Composite (^IXIC) gained 0.2%. The Dow Jones Industrial Average (^DJI) finished the holiday-shortened trading week narrowly above the flat line.

A reading of the Fed's preferred inflation gauge will highlight economic releases in the upcoming week. Updates on activity in the manufacturing and services sectors, consumer confidence, and the final reading of first quarter economic growth are also expected. A two-day semiannual monetary policy testimony from Federal Reserve Chair Jerome Powell will also be in focus starting on Tuesday.

Quarterly results from Carnival Corporation (CCL), FedEx (FDX), Micron (MU), and Nike (NKE) lead the list of expected corporate releases.

The conflict between Iran and Israel has been in focus over the past week but hasn't significantly rattled markets yet. This weekend's actions from the US will likely test this dynamic.

"The key for equities from here will come from energy commodity pricing," Citi US strategist Scott Chronert wrote in a note to clients on Friday when detailing how the S&P 500 has largely traded flat since the initial missile strike from Israel on June 13.

Oil is up roughly 10% since the outbreak of the Israel-Iran conflict, with West Texas Intermediate futures (CL=F) trading hands around $75 per barrel on Friday. As DataTrek Research co-founder Nicholas Colas pointed out in a research note on June 16, the biggest risk for markets would be a large increase in oil prices that would weigh on economic growth.

Colas analyzed the time period from 1987 through 2019 and found that WTI crude prices typically double compared to the previous year prior to recessions. Colas argued this puts the key level to watch for WTI crude at $120 a barrel, a far cry from the roughly $75 it sat at on Friday. This much of a jump in oil would require a "protracted bout of military action," per Colas.