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S&P 500 posts worst week since January
Despite some early-week strength, stocks finished the week with steep losses as the Dow Jones lost 800 points. The equities market started to sell-off on Thursday and the decline accelerated on Friday following the release of hotter-than-expected consumer price index (CPI) data for May. The VIX index turned sharply higher at the end of the week. Oil prices climbed for most of the week before falling on Friday, finishing the week modestly higher. Tech stocks underperformed the broad market as higher interest rates weighed on “long-duration” stocks. Value stocks held up better than growth stocks. The May US CPI release on Friday showed that headline inflation was 8.6% from a year earlier, topping consensus estimates. May’s headline CPI was also higher than in April (8.3%), disappointing investors who had been looking for “peak inflation”. U.S. Treasury yields increased, with the short- and intermediate-term maturities climbing sharply after the CPI release.
European shares fell sharply after the ECB suggested that it may increase interest rates at a faster-than-expected pace after July. The STOXX Europe 600 Index ended the week 3.95% lower. In the UK, PM Johnson survived a confidence vote.
Stocks in China rallied amid hopes for looser monetary policy and signs that Beijing was easing its years-long crackdown on the technology sector.
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US equities gave back a portion of the previous week’s gains, as uncertainty over the incoming administration’s policies appeared to continue driving the so-called Trump Trade. Financials and energy shares continue to benefit from hopes for deregulation and merger approvals. Likewise, the price of Bitcoin had surged by nearly a third since the eve of the election, as investors anticipated looser regulation of digital currencies. Conversely, health care shares fell sharply following news that Robert F. Kennedy, Jr., would be Trump’s nominee to head the Health and Human Services Department (HHS). On the macro side, yoy US headline inflation rose for the 1st time since March, from 2.4% to 2.6%. PPI data came in above expectations.