Market Pulse

In focus

Following three straight weeks of outsized gains, the technology sector took a breather as market leadership rotated to consumer discretionary and utility names. Small caps and the S&P 500 Equal Weight Index outperformed as stocks beneath the surface propelled the S&P 500 into a technical bull market, with the index moving 20% above its most recent bottom on October 12.

Equities’ modest gains were largely chalked up to positioning dynamics and momentum for the soft-landing narrative in a week that lacked any clear catalysts. This week will bring a flurry of events, highlighted by the Federal Reserve’s (Fed) policy rate decision on Wednesday. Investors expect no change in the policy rate, but a 0.25% hike is on the table. Markets will also look towards fresh inflation data; however, the Consumer Price Index(CPI) and Producer Price Index (PPI) releases occurring just before the FOMC meeting may limit their impact on this month’s rate decision.

Encouraged by the recent rally, investors’ optimism spiked last week. The AAII Sentiment Survey shows bullish sentiment is the highest it's been since late 2021, while the percentage of bears dropped to its lowest level in 18 months; this is a sharp reversal of recent bearish consensus. Meanwhile, the Volatility Index (VIX) reinforced the sense of calm by plunging to its lowest levels since before the pandemic.

A look back

• Emerging market equities surged last week, gaining 1.9% to outperform international developed markets and the U.S, which each posted modest gains.
• The inverted yield curve flattened more as the 2-year U.S. Treasury yield rose by 0.10% while the 10-year U.S. Treasury yield edged up only slightly to 3.74%.
• Weekly jobless claims jumped 12% to 261,000, the highest level since October 2021 

A look ahead

• The Fed will release their policy rate decision on Wednesday. Futures markets are pricing in a pause this month before another hike in July. The Fed’s dot plot will also be released.
• Inflation data will be front of mind, as CPI and PPI will provide an update on the Fed’s battle against rising prices.
• Economic releases: CPI, PPI, FOMC rate decision, Retail Sales, Empire Manufacturing, Univ. of Michigan Sentiment.

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