Market Pulse

In focus

After five-consecutive weeks of gains, which took the S&P 500 up from just over 4,100 to above 4,400, the index broke its winning streak last week. While the holiday-shortened week seemed to be lacking any major catalysts, the -1.4% decline was likely the result of incremental economic news combined with elevated levels of optimism and extended market conditions.

Federal Reserve (Fed) Chair Powell spent two days in front of Congress where his remarks were consistent with his previous messaging − the Fed would remain committed to the its 2% target which could require additional rate hikes in 2023. While there was little new information, yields on both the 2- and 10-year U.S. Treasuries increased, and their inversion deepened to -1%, levels not seen since before the banking turmoil in March.

The stretched equity markets seemed to take note of the Fed Chair’s remarks. The recent strength among mega cap stocks left popular indices far above their long-term moving averages to start the week − extended levels that some investors felt could not last and would eventually revert to the mean. Combined with the contrarian AAII Investor Sentiment Survey showing continued excess optimism, conditions were ripe for a pull-back. 

A look back

• Global equity markets were negative across the board last week with international developed and emerging markets down by more than -3% to end the week.
• As expectations for more rate hikes persisted, the 2-/10-year inversion deepened beyond -1%, the lowest level since March.
• May housing data came in well above expectations with NAHB builder confidence at its highest level in 10 months and housing starts increasing by 291K units.

A look ahead

• Several important economic data points will be available this week, notably GDP and Personal Consumption Expenditures (PCE), which may influence the data-dependent Fed.
• Fed Chair Jerome Powell is on the road this week, speaking at the European Central Bank Forum in Portugal before heading to Madrid for a conversation with the Bank of Spain.
• Economic releases: Durable Goods Orders, Consumer Confidence, New & Pending Home Sales, GDP, PCE, U. of Michigan Sentiment.

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