The major US equity indexes ended mostly higher for the week, with the S&P 500 Index and Nasdaq Composite touching new highs. The market’s advance remained exceptionally narrow for the 2nd consecutive week, however, with an equally weighted version of the S&P 500 trailing its more familiar, capitalization-weighted counterpart by 2.15%. The AI euphoria continues to provide a continuing tailwind to tech-related stocks and growth shares, which outpaced value stocks by the largest margin since March 2023 (461 basis points). Another factor behind growth shares’ outperformance may have been reassuring inflation data and falling bond yields. US headline CPI inflation was flat in May for the first time in nearly two years. Producer price index (PPI) inflation also surprised on the downside, with core PPI falling back to 2.3% yoy, marking an end to five consecutive months of increases. The downside inflation surprises pushed the yield on US 10-year notes sharply lower for the week, from 4.43% to 4.21%. The Fed left rates unchanged, as was widely expected, but officials increased their median expectation for the Fed funds rate at the end of 2024 significantly, from 4.6% to 5.1%, which would imply only one cut later in the year. The STOXX Europe 600 Index returned -2.39% as political uncertainty undermined confidence following the strong showing by far-right parties in the European Parliament elections the previous weekend. The OAT-Bund spread soared while the euro tumbled. Gold was bid. Cryptos sold off.
Have a great week-end
Charles