We hope you all check out the content from the Mid-Year Update, which includes videos from each of our amazing speakers. Photos from the night will be available on our Events page Monday!
And now onto the weekly recap:
This holiday-shortened week started out slow for the stock market as many participants extended the Fourth of July break into a four-day weekend. After the holiday break, market participants found some catalysts to take money off the table after the strong start to the year for stocks.
Notably, the Invesco S&P 500 Equal Weight ETF (RSP) (-0.8%) exhibited a slimmer decline than the market-cap weighted S&P 500 (-1.2%) due to relative weakness from mega cap stocks.
Geopolitical angst and concerns about global growth were part of the mix early in the week following the news that Services PMI readings for June out of China and the eurozone were weaker than expected, that the U.S. is looking to restrict China's access to cloud computing, and that China said foreign entities will have to request permission to export gallium and germanium.
Later in the week, rising market rates were the biggest factor driving selling interest in the stock market. The 2-yr Treasury note yield rose six basis points this week to 4.94% after settling above the 5.00% level on Thursday. The 10-yr note yield climbed back above 4.00%, settling the week up 23 basis points at 4.05%.
Those moves followed the stronger than expected ADP Employment Change and ISM Non-Manufacturing Index for June. Treasury yields pulled back from their peak levels this week, though, after the Employment Situation Report for June on Friday indicated that payroll gains were less robust than the ADP report estimated.
The official employment report also showed an increase in the average workweek and a 0.4% increase in average hourly earnings, which bodes well for continued spending growth that will support continued growth in the economy. Overall, the employment report supported the soft landing narrative.
Still, the bump in rates stoked valuation concerns in the stock market as participants considered the possibility of the Fed being more aggressive than expected with its tightening action. A 25 basis points rate hike in July has been solidified while expectations for rate hikes at future meetings increased.
Despite the rising probabilities, the fed funds futures market still sees a "one-and-done" view of the world. According to the CME FedWatch Tool, the probability of a second rate hike at the September, November, and December FOMC meetings is just 24.0%, 39.2%, and 35.5%, respectively.
Those probabilities could turn higher next week after the June Consumer Price Index report on Wednesday.
On a Fed related note, market participants received the FOMC Minutes for the June 13-14 meeting this week, but they did not contain any surprises and the market did not react much.
Separately, another reason that market participants are starting to pay more attention to rising interest rates is because rising, risk-free rates create added competition for stocks and create headwinds for further multiple expansion efforts.
Only one of the 11 S&P 500 sectors logged a gain this week -- real estate (+0.2%) -- while the utilities (-0.2%), communication services (-0.3%), and consumer discretionary (-0.3%) sector saw the slimmest declines. The worst performers included the health care (-2.9%), materials (-2.0%), and information technology (-1.5%) sectors.
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.