The stock market had another strong week last week, though the gains were uneven. The major indices reached new all-time highs, driven largely by big tech stocks like Apple and Nvidia. Apple even briefly reclaimed its position as the world's largest stock, surpassing Microsoft. However, outside of U.S. large-cap growth stocks, the only other notable gainer was the emerging markets index, which has outperformed the S&P 500 for the quarter as of last week.
The bond market also had a positive week. Ten-year Treasury yields fell by nearly a quarter of a percent, breaking out of a consolidation pattern around 4.5%. From a technical analysis perspective — examining price action to predict future movements — this suggests that longer-term yields are likely to decline in the short to intermediate term. This drop in yields was supported by favorable inflation reports, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) coming in below expectations.
Looking ahead to this week, the markets will be closed on Wednesday in observance of Juneteenth. Key economic data to watch includes housing data, retail sales, and the composite of leading indicators.
Interest rates will remain a focal point. The Federal Reserve kept interest rates steady for the ninth consecutive meeting last week, with Chair Jerome Powell reiterating the potential for rate cuts later this year. However, it's not guaranteed. According to the CME FedWatch tool, there's still a nearly 90% chance of another rate pause in July, with a 70% chance of a rate cut by September, up from 50% the previous week. Despite the recent positive inflation data, it’s prudent to avoid major investment decisions based on one set of data points. Median inflation is still expected to settle in the high threes or low fours, above the Fed's 2.0% target. Notably, four of the nineteen voting Fed members do not anticipate a rate cut this year, while the others are divided on one or two cuts.
The bottom line is to:
Stay invested. Stay diversified. Stay disciplined.
If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust. See you next week!