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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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Stocks were volatile this week with continued rotation in market leadership to small-cap and value shares. U.S. markets initially rallied to new-highs but faded toward week's end, led by weakness in the tech sector. The S&P 500 and Nasdaq closed lower on the week, while the Dow posted a solid gain. Value stocks outpaced growth stocks by 477 basis, as measured by Russell indexes—the largest divergence since March 2023. The week was also notable for a widespread global disruption to computer systems early Friday due to an error in a vendor’s security update to some users of the Microsoft operating system.