Our First Annual Mid-Year Update is next week on June 27th! We are hard-at-work putting the finishing touches on what we hope will be a wonderful evening. Thank you to everyone who sent in an RSVP. We are so excited to host you! For those who are unable to make it, stay tuned for the video and updates from the event!
And now onto the weekly recap:
This holiday-shortened week of trading saw the S&P 500 and Nasdaq break five and eight week winning streaks, respectively. Coming into the week, there was a growing sense that the market was due for a pullback, so losses were driven largely by normal profit taking activity after a big run.
Notably, mega cap stocks were still relative outperformers this week. One might have expected consolidation efforts to be focused more on mega caps, which have been leading all year. Selling was more pronounced in non-tech related stocks, though, as evidenced by the 2.7% loss in the Invesco S&P 500 Equal Weight ETF (RSP) versus the 1.0% decline in the Vanguard Mega Cap Growth ETF (MGK). The market-cap weighted S&P 500 fell 1.4%.
By the end of the week, concerns about global growth and the lag effect of rate hikes by central banks had entered the market narrative.
Fed Chair Powell said in his semiannual monetary policy testimony before the House Financial Services Committee on Wednesday that there could be two more rate hikes by the Fed before the end of the year if the economy performs as expected. This was followed by Fed Governor Michelle Bowman (FOMC voter) saying in a speech that "additional policy rate increases will be necessary to bring inflation down."
Fed Chair Powell continued his monetary policy testimony before the Senate Banking Committee on Thursday. He didn't provide any new surprises in terms of monetary policy views, yet there was consternation among committee members regarding capital requirements for banks. That understanding undercut the bank stocks this week.
The SPDR S&P Bank ETF (KBE) fell 6.8% while the SPDR Regional Banking ETF (KRE) fell 8.1%.
Weak regional bank components, along with the growth concerns, led to the underperformance of the Russell 2000, down 2.9%.
Several central banks announced increases in their policy rates, including the Bank of England (+50 bps to 5.00%), Norges Bank (+50 bps to 3.75%), Swiss National Bank (+25 bps to 1.75%), and Central Bank of Turkey (+650 bps to 15.0%). Those moves stoked concerns about global inflation and the lag effects of rate hikes potentially impacting global growth.
Piling onto the growth concern narrative, preliminary June manufacturing PMIs for Japan, Germany, the UK, the eurozone, and the U.S. all came in below 50 (i.e. the dividing line between expansion and contraction).
Some economic data for the U.S. was also on the weaker side this week. Existing home sales declined 20.4% year-over-year in May while the Leading Economic Index declined for the 14th consecutive month. Also, weekly initial jobless claims remain elevated above 260,000.
Housing starts, though, came in really strong relative to expectations. Total starts surged 21.7% month-over-month to a seasonally adjusted annual rate of 1.631 million units -- the highest since April 2022 -- while total building permits rose 5.2% month-over-month to a seasonally adjusted annual rate of 1.491 million, aided by a 4.8% increase in single-unit permits.
In response, homebuilders outperformed this week. The SPDR S&P Homebuilder ETF (XHB) rose 0.5% and the iShares U.S. Home Construction ETF (ITB) rose 1.9%.
Only one of the S&P 500 sectors logged a gain this week -- health care (+0.2%) -- while the real estate (-4.0%), energy (-3.5%), and utilities (-2.6%) sectors saw the largest declines.
Separately, trading volume was extremely heavy on Friday due to the reconstitution of the Russell Indexes.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.