Last week, markets divided between mega caps, AI-linked tech, and energy driving the winning side, while small and mid caps sank lower. All eyes are now on housing, inflation, and retail sales data due out this week, along with Fed Chair Warsh’s congressional testimony.
Commentary
Markets finished the week with leadership narrowing around mega cap growth, AI-linked tech, and energy.
- U.S. equities were mixed: The S&P 500 and Nasdaq rose during the week, while small and mid caps lagged. Gains were concentrated in large cap growth and AI-linked technology as momentum stabilized, even as breadth remained uneven and positioning/valuation concerns kept investors sensitive to semiconductor and software headlines.
- Sector leadership focused on narrow range of energy and AI-linked growth: Technology, energy, and communication services led the S&P 500, while materials, health care, and consumer staples underperformed. International equities were mixed, with Europe softer and emerging markets and Asia ex-Japan posting gains.
- Treasury yields rose across the curve, pressuring core bonds, while mortgage and prime rates were unchanged. The U.S. Agg fell 0.44% but remained in positive territory year to date. Credit was mixed but generally more resilient than core bonds, with senior loans up as flows and technicals remained supportive.
- The dollar strengthened modestly. WTI crude rose to $71.41, gold declined, and copper edged higher as Middle East headlines and Strait of Hormuz risk remained in focus. However, oil upside was capped by supply-glut concerns and skepticism about sustained escalation.
- Market drivers came from multiple directions, including rates, earnings expectations, AI/technology positioning, and geopolitical risk.
- Policy stayed in focus as stronger yields reflected a more hawkish Fed-rate debate ahead of June CPI/PPI, retail sales, the Beige Book, and Fed Chair Warsh’s testimony. The Fed’s Monetary Policy Report continued to describe inflation as elevated and the labor market as fairly strong.
- Growth signals were mixed. Markets continued to digest the prior week’s softer June employment report. ISM services was viewed as consistent with a still-solid backdrop despite softer headline/new orders readings.
- Earnings season setup mattered: Markets were in “waiting mode” ahead of reports from major banks and other large companies, with a high bar set after upward revisions to S&P 500 EPS estimates during 2Q. AI capex optimism supported mega cap tech, including Meta-related compute headlines and midweek Nvidia strength.
- Inflation and credit risks stayed on the radar. Tariff pass-through remains in the pipeline, while higher oil prices could complicate inflation readings. Corporate credit remained resilient despite heavy issuance; investment-grade and high-yield spreads tightened, though investors continued to monitor AI-related credit exposures.