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STOCKS SOARED, COMMODITIES & BONDS DIP
The main US equity indices erased much of the previous week’s losses on optimism that the Fed will be able to curb inflation without tipping the economy into a recession. Communication services, consumer discretionary, and IT sectors outperformed while Utilities underperformed. On the macro side, ISM services activity in June came in modestly above consensus estimates but indicated a continuing slowdown in growth. Friday’s US payrolls report showed employers added 372,000 nonfarm jobs in June, well above consensus expectations of around 270,000. YoY earnings grew by 5.1%, marking the 3rd monthly deceleration from March’s recent peak of 5.6%. On Wednesday, Fed June meeting minutes were hawkish, bolstering investors’ expectations for a higher terminal Fed funds rate, supporting higher yields across the curve. U.S. Treasury 10-year notes rose to roughly 3.10% on Friday. The 2-year/10-year segment of the Treasury yield curve inverted. In Europe, stocks advanced after 3 consecutive months of losses while Germany's trade balance showed a deficit — the 1st since 1991— as exports fell unexpectedly. Boris Johnson announced his intention to resign after more than 50 ministers and several Cabinet members stepped down in protest at his handling of a series of scandals that have rocked his administration. In Asia, Japan stocks gained while Chinese stocks eased as rising covid cases and elevated geopolitical tensions hurt sentiment. Global commodities were crushed again while the dollar and cryptos gained.
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Most US equities indexes ended the week lower, although the tech-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. The Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. Growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12%) and Alphabet (8.4%). On the macro-economic side, stagflation fears started to rise once again. Indeed, YoY CPI and PPI both accelerated. Meanwhile overall macro surprises disappointed for the fourth week in a row: on Thursday, the Labor Department reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000.