The local stock market is seen to continue having a negative bias this holiday-shortened week despite the lower-than-anticipated inflation data released last week, amid continued uncertainty in the Middle East and its impact on prices and interest rates should hostilities escalate.

“The local market has been picking up momentum recently on the back of bargain hunting, boosted by the Philippines’ lower-than-expected May inflation rate. However, sustainability of the momentum remains questionable, as the market continues to face uncertainties, especially with the United States (US)-Iran situation,” said Philstocks Financial Inc. research manager Japhet Tantiangco.

While May inflation was lower than April’s, Tantiangco noted that it is still well above the government’s two- to four-percent target and that further monetary policy tightening may still be on the table.

“The situation in the Middle East is deemed unstable amid recent exchanges of military force between the US and Iran. The dimming outlook for a peace deal between the two may weigh on the market next week. If tensions re-escalate, it may drag the local bourse lower,” he warned.

Meanwhile, online brokerage 2TradeAsia.com said local market participants entered June pricing in a rate hike from the Bangko Sentral ng Pilipinas (BSP), tracking weeks of deliberate, restrictive guidance from central bank officials.

While May inflation data offered temporary relief, it pointed out that “a quick note from the recent consumer price index (CPI) report includes core food staples like rice, corn, and flour accelerating alongside housing and clothing expenditures.”

The brokerage said these structural components warrant monitoring as the market transitions into typhoon season, with vulnerabilities expected to be amplified by El Niño disruptions.

It also noted that while the near-term slowdown in headline inflation is a constructive development, “a single data point does not trend make.”

Thus, it advised that portfolios remain positioned for impaired consumer confidence and an elevated cost of capital entering the third quarter.

“Monitor impending interest rate and climate headlines closely, being sources of immediate catalysts for localized volatility. Liquidity preservation and strict risk management remain paramount; accumulate defensive large-caps on weakness while trimming high-beta exposure to shield capital from macro headwinds,” it added.

For stock picks, Unicapital Securities Inc. has a BUY rating on Security Bank Corp., supported by the bank’s improving asset quality, enhanced capital efficiency, and continued cost discipline.

“We believe (the current) valuation does not fully reflect the bank’s earnings growth potential, underpinned by an improving cost-to-income ratio, better current and savings account (CASA) ratios, and increasing contributions from its digital banking initiatives as management transitions from platform modernization toward monetization,” said Unicapital research analyst Lance Rafael Y. Cai.

For dividend plays, Abacus Securities Corp. prefers OceanaGold (Philippines) Inc. (OGP), LT Group Inc. (LTG), PLDT Inc., and Universal Robina Corp. (URC).

“OGP has become one of the highest-yielding names mainly due to the rise of gold prices and would likely sustain its dividends for several more quarters,” it said, adding that LTG has been one of the most consistent dividend payers over the years without compromising its share price performance and appears capable of sustaining its dividends in the coming years.

PLDT maintains a stable outlook for its payout, but Abacus added that “there is a potential upside to be unlocked for the stock especially once its fintech arm, Maya, pursues its initial public offering (IPO).”

URC has also seen its share price decline substantially, putting the stock at a 7.1-percent yield, which is already attractive and, with the company’s expected recovery in the second half of 2026, “we believe the upside is also there and would be ideal to accumulate on the stock.”