After a strong first half in 2023, equity markets retreated as we entered the first week of the third quarter. The S&P 500 was down -1.2% last week, while small-cap stocks underperformed large-cap equities. Growth stocks held up modestly better than value shares. The key driver for this market disruption was stronger-than-expected labor market and services data, as well as Wednesday’s release of (hawkish) minutes from the Federal Reserve’s last policy meeting. Expectations that rates would remain “higher for longer” were deepened Thursday, after Dallas Fed President Lorie Logan said that she anticipates two more rate increases in the remainder of the year. In response, markets began pricing in a roughly 44% chance of two or even three quarter-point hikes by December, according to the CME FedWatch Tool. That probability fell back to end Friday at around 36%, however, seemingly in response to data indicating a slowdown in the job market. The yield on the benchmark 10-year U.S. Treasury note fluctuated following the release of Friday’s payroll report but closed higher for the week and firmly above 4% for the first time in eight months. The STOXX Europe 600 Index fell 3.09% on fears that central banks might need to keep tightening monetary policy. Investors were also disappointed by a lack of specific measures to bolster the Chinese economy despite more pledges of support from government officials. Japan’s stock markets fell over the week, with the Nikkei 225 Index registering a 2.4% loss.