Weekly Market Recap: Markets Regain Ground as AI Momentum and Oil Relief Offset Fed Uncertainty

Market Overview

U.S. equities rebounded modestly this week after last week’s late selloff, with investors continuing to navigate volatility tied to artificial intelligence, Middle East headlines, and shifting rate expectations. The S&P 500 gained 0.66%, the Dow added 0.68%, and the Nasdaq rose 0.71%, while small caps led with the Russell 2000 up 3.93%.

Market leadership broadened beneath the surface. Value stocks outpaced growth, with the Russell 1000 Value rising 2.49% compared with a 0.84% decline for the Russell 1000 Growth Index. Sector performance reflected that rotation, as Materials, Energy, Consumer Staples, and Financials led the week, while Communication Services lagged.

Artificial intelligence remained a key driver after NVIDIA announced a multi-year agreement with Korea’s SK Hynix for AI memory chips, while reports of Intel producing chips for Alphabet added support to the semiconductor narrative. Still, stretched positioning and geopolitical uncertainty kept trading choppy, pushing investors toward more economically sensitive areas of the market.

International markets were mixed. European equities advanced as lower oil prices and hopes for a U.S.-Iran agreement supported sentiment, while the European Central Bank delivered its first rate hike since 2023. Asian markets were broadly weaker, pressured by volatile semiconductor trading, weaker gold-related names, and concerns around hotter inflation data in Japan.

Federal Reserve Insights and Economic Roundup

Fixed income markets gained ground as Treasury yields moved lower and corporate bonds remained resilient. The Bloomberg U.S. Aggregate Bond Index rose 0.52%, U.S. corporates gained 0.55%, and high yield advanced 0.45%. The 10-year Treasury yield declined to 4.48% from 4.55%, while the 2-year yield fell to 4.09% from 4.17%.

Corporate credit conditions remained steady despite recent equity volatility. Investment-grade and high-yield spreads barely moved and remain near low levels, supported by improved credit quality and limited default activity. High-yield default rates remain low, and no payment defaults or distressed exchanges were recorded in May, the first such month since August 2018.

Commodities declined, led by a more than 6% drop in WTI crude oil as hopes increased for an interim U.S.-Iran peace deal and a possible reopening of the Strait of Hormuz. Gold fell more than 2%, silver edged higher, and copper gained as easing geopolitical risk supported industrial metals. The U.S. Dollar Index weakened as the euro strengthened following the ECB rate hike.

Inflation data remained a key focus. Core CPI rose 0.2% month over month, holding the annual core inflation rate below 3%, while headline inflation rose to 4.2% on higher energy prices. Rising gasoline, transportation, and medical care costs remain areas to watch. With the Iran crisis extending into June, inflation pressures could spread further if energy disruption persists through the summer.

The Fed is expected to remain on hold next week while likely removing any bias toward additional easing, as policymakers balance softer core inflation against the risk of a broader energy-driven price shock.

The Week Ahead

Monday: Empire Manufacturing, industrial production, capacity utilization, NAHB Housing Market Index.
Tuesday: ADP weekly employment, import/export prices, NY Fed Services, housing starts, building permits.
Wednesday: MBA applications, retail sales, business inventories, pending home sales, FOMC decision.
Thursday: jobless claims, Philly Fed, Leading Index, TIC flows.
Friday: Juneteenth holiday, no releases scheduled.