After previously breaking a five-week winning streak, the S&P 500 rallied last week − up 2.4%. Leadership consisted mostly of cyclical sectors like energy, materials, and industrials; meanwhile, defensive areas like health care and utilities lagged. Despite the cyclical tilt, all eleven sectors in the S&P 500 ended the week higher.
Fixed income markets, on the other hand, remained at odds with the energetic equity markets, continuing to price in a higher-for-longer Federal Reserve (Fed). Both 2- and 10-year U.S. Treasury yields rose last week, and the Treasury curve further inverted, signaling that bond investors are increasingly pessimistic about near-term economic conditions.
Economic data underlying the market’s behavior was mixed last week but skewed positive with the Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE), showing its lowest year-over-year increase in over two years with Gross Domestic Product also increasing. The bulls point to a soft-landing based on robust economic activity and moderating inflation, while the bears call out sticky core inflation and higher rates with lagged effects. Last week, the bull’s optimism prevailed, but with inflation at elevated levels and the Fed messaging higher rates, the debate is far from over.
A look back
- Global equity markets snapped back last week to end in positive territory by 2%. Emerging market equities lagged the group, down four basis points (0.04%).
- On the heels of stronger economic data early in the week, the 2-year U.S. Treasury yield increased to 4.87% and the curve further inverted.
- PCE data from May was released last Friday and showed the lowest year-over-year increase in prices since April of 2021.
A look ahead
- A disjointed trading week is ahead as markets close early Monday before taking a break on Tuesday to celebrate July 4.
- Despite the shortened week, investors get numerous important economic readouts − including the Federal Open Market Committee (FOMC) meeting minutes from June.
- Economic releases: S&P Global U.S. & ISM Manufacturing & Services, Durable Goods Orders, FOMC minutes, Nonfarm Payrolls, and the Unemployment Rate.
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