Weekly Recap:

by Eric Criscuolo & MIchael Reinking, CFA

With markets closed tomorrow for the Juneteenth Holiday, we're publishing an abridged weekly recap today, a day 50+ years in the making. For those of you who weren't around 11 Wall Street there was a Blue and Orange sea of humanity in lower Manhattan, reportedly around 2-3 million strong. And they all got there well before the Knicks championship parade down the Canyon of Heroes began.

Regarding the Fed meeting yesterday, you can read our MAC Desk Fed Recap here if you missed it. At a high level, there's a new sheriff in town. Kevin Warsh assumed the Fed Chair role from Jerome Powell and quickly put his stamp on things. A unanimous vote by the FOMC left the target rate unchanged at 3.5% to 3.75%, as expected, and we could see A LOT of changes in the way the Fed operates in the coming months.

There was a swift market response. Treasury yields moving sharply higher particularly at the front end of the curve. The long end was notably well-contained. That could suggest that the market is giving the Chair a nod of credibility around his commitment to price stability. Keep in mind, however, there may also be some positioning dynamics at play as yield steepener trades were very popular with his appointment given his dovish rhetoric and expectations that he would shrink the Fed’s balance sheet. Equity markets sold off in response with major indices falling >1% yesterday.  

As investors continued to digest yesterday’s meeting yields pulled back a bit today, with a continued flattening of the curve. The 2y was only down about 1bp today. Longer tenors saw a bit more, with the 30y down 4bp. The 2/10 spread is ~25bps, the lowest level in over a year.

For the week the 2yr rose 11bp while the 10 and 30y fell 1 and 6bp, respectively.

Equities quickly got over most of their late day weakness. Futures bounced overnight and the S&P 500 opened up almost 1% and we've been hovering around that level for the day, reversing a good portion of yesterday’s selloff. The equal-weight lagged modestly, while small caps outperformed.

Today's gain puts the S&P in the green for the week (+1%). Tech and in particular Semis drove things, however, and the rest of the market was not as robust. The equal-weight fell just under 1%. Dow Transports fell 4% with weakness in the trucking/freight names on a group downgrade- though this comes after 20-40% YTD gains for them.

Tech stocks led to the upside on Bounceback Thursday, and for the week overall. NYSE Semis rose 7% on Thursday and for the week, with INTC's 10% gain on the day driving the upside. Trump posted that Apple was working with the company to design and build its chips in America. Apple is also raising prices due to memory chip costs. The DRAM ETF gained 10% and 18% for the week. Industrials were also a leading sector this week with Machinery, Airlines, Electrical and Building Products seeing strong gains. Energy was the notable laggard on oil's decline. Staples fell as well. One interesting development to keep on eye on for Tech, Utilities and Data Centers was FERC's ruling that could fast-track data center buildouts while clearing connection queues of suspect requests for interconnection, which are clogging up the pipelines.

President Trump signed the MoU Wednesday night. There are write-ups all over the place, but CNN has a pretty good one here. Ships have begun traversing the Strait. A 60-day clock now starts ticking on a final deal. This will, god-willing, include the long-term operation of the Strait and an agreement on Iran’s nuclear program. 

This week's economic/macro events revolved around the Fed and Warsh's presser. We also had retail sales, which came in ahead of expectations pretty much across the board. Headline was up 0.9% and if you strip out autos and gas it was still up a healthy 0.5%. The control group, which feeds into GDP, was up 0.7%, above the 0.4% estimate. Motor vehicle/parts, furniture/home and apparel all bounced back after declines last month while electronics, department stores and food services all fell from last month. The latter will likely bounce back next month with the World Cup providing a tailwind.

In the weekly labor data, initial claims were inline with expectations at 226k while continuing claims ticked up over 1.8ml.

Moving to global markets, European equities were mixed today but finished up on the week, though the UK lagged. Financials were strong but Energy and software services weighed on the FTSE 100. The BOE held rates as expected, as did Norway and Switzerland. The Nikkei saw strong gains both today and this week. The index pushed past 70K for the first time ever. Tech saw some notable gains this week including memory maker Kioxia (+40%), Tokyo Electron and Advantest (+25%) and SoftBank (+20%).

China’s markets were mixed. Hang Seng fell over 1% on Thursday and 3% for the week, reaching its lowest level since last July. Major tech components like Alibaba and Tencent ended the week lower, continuing there YTD slides (Alibaba, Tencent -25%). Shanghai was lower on Thursday but up for the week as the tech names in that index, more directly exposed to AI, performed well (Shengyi, Cambricon +25%). South Korea’s KOSPI is up over 10% this week, breaching 9K and looking to end a two week losing streak. 

Commodities and Crypto - It was a volatile week

Markets are closed tomorrow, and NYC will still be cleaning up after the Knicks parade. Key economic data next week will include PCE and Flash PMIs. Micron will release closely watched earnings, along with CCL, FDX and FDXF, among others. Qualcom will host an Investor Day. The Russell Reconstitution will happen at the close on Friday, so expects lots of volume. Until then, Enjoy your weekend and Happy Father's Day!    

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