Weekly Market Recap: Turbulent Stock Movements, Political Drama, and Economic Indicators

Market Overview:

This week, U.S. stocks experienced a turbulent period with significant market rotation, historic political events, solid earnings reports, trade tensions, and global cyber outages. Despite this, all three major indexes reached record highs intra-week. The Dow Jones Industrial Average was the only major index to post weekly gains, rising by 0.65%, while the S&P 500 and Nasdaq Composite fell by 1.9% and 3.7%, respectively. The Russell 2000 small-cap index gained 1.8%, although it ended the week below its peak levels, and the Russell 1000 Value Index outperformed the Growth Index by nearly four percentage points.

Political events significantly influenced the markets, especially the failed assassination attempt on former President Donald Trump, which led to early-week gains for banks, defense, and traditional energy sectors. Further political drama included President Joe Biden pausing his campaign events due to COVID-19.

The extended rotation away from big tech and into small caps, value, and cyclicals was driven by heightened rate-cut hopes. This rotation saw tech stocks slump, exacerbated by trade tensions between the U.S. and China and resulting in the VIX index reaching its highest levels since May. Earnings season saw mixed price action despite mostly beating estimates.

Internationally, European markets closed lower, impacted by global cyber outages from CrowdStrike, disappointing macro data, and the European Central Bank's decision to hold rates unchanged. Asian markets followed Wall Street's negative trend, particularly in tech-heavy regions like Japan, Taiwan, and South Korea, despite Taiwan Semiconductor Company's strong earnings report. In China, the market ended higher due to the People's Bank of China holding rates steady and ongoing state-funded buying, though the Hang Seng fell due to disappointing economic data.

Federal Reserve Insights and Economic Roundup:

In fixed income, the Bloomberg U.S. Aggregate Index ended slightly lower as Treasury yields remained largely unchanged. The 10-year yield was stable, while the 2-year yield increased by three basis points. The "Trump trade" influenced yields, pushing them higher early in the week. However, midweek yields declined due to dovish comments from Fed Chair Jerome Powell, before rising again following jobless claims data.

Commodities saw declines, with the Bloomberg Commodities Index dropping nearly 3.2%. WTI crude oil experienced significant fluctuations, ending the week down by almost 2.4% due to Chinese demand concerns and a stronger dollar. The U.S. dollar index rose by 0.3%, while gold and silver futures fell, the latter affected by the lack of new stimulus measures from China. Copper and soft commodities also declined.

June retail sales were flat, with declines in auto sales, restaurant spending, and sporting goods stores, but warehouse clubs and superstores saw increased activity. Unemployment claims rose, indicating a cooling labor market. Initial claims increased by 20,000, and continuing claims were the highest since November 2021. The upcoming payroll report is expected to reflect this softening trend.

The Week Ahead:

The economic data scheduled for the upcoming week includes:

Monday: Chicago Fed National Activity Index (June)

Tuesday: Philadelphia Fed Non-Manufacturing Activity (July), Richmond Fed Manufacturing Index (July), Richmond Fed Business Conditions (July), Existing Home Sales (June)

Wednesday: MBA Mortgage Applications (July 19), Wholesale Inventories (June preliminary), Advance Goods Trade Balance (June), Retail Inventories (June), S&P Global U.S. Manufacturing PMI (July preliminary), S&P Global U.S. Services PMI (July preliminary), S&P Global U.S. Composite PMI (July preliminary), New Home Sales (June)

Thursday: GDP Annualized (Q2), Personal Consumption (Q2), GDP Price Index (Q2), Core PCE Price Index (Q2), Initial Jobless Claims (July 20), Continuing Claims (July 13), Durable Goods Orders (June preliminary), Durables ex Transportation (June preliminary), Capital Goods Orders Nondefense ex Aircraft (June preliminary), Cap Goods Shipments Nondefense ex Aircraft (June preliminary), Kansas City Fed Manufacturing Activity (July)

Friday: Personal Income (June), Personal Spending (June), Real Personal Spending (June), PCE Price Index (June), Core PCE (June), University of Michigan Sentiment & Expectations Report (July final), Kansas City Fed Services Activity (July)