Weekly Recap:

by Eric Criscuolo & MIchael Reinking, CFA

The S&P 500’s 9-week winning streak came to an end last week, thanks in part to a strong monthly jobs report on Friday that sent treasury yields higher, pressuring equities and piling onto already-present tech weakness to push the index into the red for the week.  

This week Iran news continued to cross the tape with variations on an established theme. That theme being: the US and Iran exchange fire overnight, without further escalation, and follow-up reports continue to say negotiations continue. Rinse. Repeat. Markets still reacted to these updates but it felt like the magnitude of the reactions had moderated. However later in the week we maybe - MAYBE - took a significant step towards a resolution. Looking beyond geopolitical news, there was a lot to digest, especially in the Tech space.

Equities began this week with a modest bounce on Monday from Friday’s losses. However it was basically all Tech as almost every other sector was lower. As the week progressed, this dynamic flip-flopped. Tuesday saw Tech weakness return while the rest of the market was strong. Wednesday brought this week’s most important data- the latest CPI report (discussed in more detail below). It wasn’t a hot number but remained well-above the Fed’s 2% target. Yields moved higher- the long end in particular, but it didn’t really explain the magnitude of the equity weakness that followed. Tech was hit the hardest as the rotation continued to play out. There were legitimate questions of how much of the tech weakness was investors selling names to free up funds for the SpaceX IPO on Friday- or on the other hand to take exposures down ahead of a potential volatile event.   

At its low on Thursday the S&P was looking at a ~2% decline for the week. Potentially the second down week in a row after a run of gains. Maybe drawing parallels to…the New York Knickerbockers? The Spurs ended the Knicks 13 game playoff winning streak in Game 3 of the NBA finals, and then looked like they were putting the Knicks on a losing streak after going up 29 points in Game 4. Instead, the Knicks, like an epic short squeeze on a triple-levered ETF at the lows, produced an insane, record-breaking, come from behind victory.  And what happened Thursday afternoon in the markets? Right on queue, with markets sagging, President Trump posted that a “framework for an agreement” on Iran was reached, with a list that included multiple Middle Eastern countries. We’ll leave out the part that Iran was left off that list of countries. Anyway, oil fell through the floor, yields dropped and equities jumped, but not quite as high as OG Anunoby on that game-winning tip-in. 

Equities extended those gains on Friday. The late-week strength pushed the S&P 500 to a 0.6% gain. The equal-weight showcased strong breadth, rising almost 2%. Nine of eleven sectors were higher. The large and mega cap growth names that have propelled the index higher for seemingly all of eternity actually fell about 1%. Basically everything else stepped up in their place. Small caps ripped 4%. However space names got torched on the launchpad of the SpaceX IPO on Friday.

The S&P 500 came close to but never quite tested its 50d moving average before reversing higher to end the week on a high note. 

Materials, Financials and Staples were the leading sectors this week. Materials benefitted from the fall in crude. Positive commentary at investor conferences helped Financials, and several exchanges and asset managers saw strength after general weakness the past month. Staples made most of their move higher earlier in the week. Positive takeaways from Smucker’s earnings helped the group. Tech  was about in line with the index but it was a Tale of Two groups: Semis flew. Software crashed. Comm Services was at the bottom this week. Meta fell 4% and Alphabet 2%, supplying most of the pressure as mega caps were under pressure for most of the week. Media was also mostly lower though Charter was up 10%, rebounding from multi-year lows. Energy lagged on oil’s decline.

The tech sector’s weakness in June was generating considerable attention for obvious reasons.  Since peaking on June 2, the XLK (Tech), DRAM (Memory) and NYSX (NYSE 100) ETFs were all down ~10% coming into Thursday. The IGV software ETF was down 7 straight days after a scorching rally from down over 25% YTD to even. 

With several potential reasons for the weakness (profit-taking, positioning for IPOs, concern about AI ROIC among them), we saw signals that some of this was just rotating to other equity areas. Despite the S&P 500 down 2% in June, the equal-weight is up 1% and small cap indexes 2-3%. Lagging areas like Healthcare and Financials that were down YTD saw gains as tech swooned.

The rally on Thursday and Friday was led by Tech, Materials and Industrials- 3 of the leading sectors YTD and which sold off since June 2.  The long semis/short software trade was back in a big way this week. The NYSE Semis index rose over 10% while the IGV software ETF fell over 5%. It was the second worst underperformance for software vs. semis in five years. Neoclouds like CoreWeave were strong on Thursday and Friday.

This week also continued to showcase the growing need for companies to raise capital to fund AI-related spend. It also highlighted how considerably more discerning investors are becoming to these events. Super Micro got pummeled, down 27% after announcing a $7B equity raise.

Oracle released solid earnings with strong growth but also announced the company was looking to raise another ~$20B of equity in FY27, on top of the $20B previously announced. The stock sold off after the print. Relatedly, Broadcom along with Apollo and Blackstone announced a $35B agreement for BX and APO to finance the buildout of 20GW of compute capacity using Broadcom chips through 2028. That includes Anthropic’s 1GW this year. It’s also another mark for the AI-circularity Bears. With all this spending, it didn’t help that the WSJ reported that OpenAI was considering “drastic” price cuts for its tokens, in anticipation of a price war with Anthropic.

An FT story this week shined a light on another angle of concern around all the AI spending. “Goldman Sachs estimates net supply of equity in the US — measured by new shares hitting the market less equity removed by buybacks or companies going private — will be almost flat in 2026, having been in negative territory since 2003.” The massive cash flows that supported enormous share buyback programs are disappearing, along with the steady corporate bid underlying the equity market for years.

While AI dominates the cycle, a flurry of broker conferences provided corporate updates across the general economy, and they were largely sanguine, supporting the view that the economy, and consumers overall, remain healthy.

Last week was employment week and this was inflation. Inflation has been accelerating and remains above the Fed’s targets - though this week’s numbers were no worse than feared. Markets largely took the numbers in stride as they were somewhat overshadowed by the geopolitical headlines, as the increase in energy has been the primary driver.

Headline CPI was inline with expectations up 0.5%, down a touch from last month, while annual accelerated to 4.2% from 3.8% last month. The increases were primarily driven by energy while food moderated. Core was up 0.2%, a tenth better than expected while the annual reading was inline at 2.9% up from 2.8% last month. Last month there was a big jump in shelter related to the government shutdown which reversed. New vehicles, medical care commodities and transportation services driven by declines in vehicle insurance all fell. 

Headline PPI was higher than expected though the prior month was revised lower. It was the highest reading since November 2022. Core was lower than expected and prior also revised lower. Final Demand Goods rose 2.8% m.m- the largest increase since the data was first published in Dec 2009. Energy’s 10.7% increase drove 80% of the change. Final Demand Services Rose 0.3%. The volatile Trade Services (ie margins) fell 1.1% (rose 1.3% prior month). Transportation and warehousing, a segment we’ve been highlighting, rose 2.6%. 

The inflation expectations within the NY Fed’s Consumer Survey held steady while they fell in this morning’s U of Mich. Sentiment Survey (which is known to be more volatile) to 4.6% and 3.4% on a 1 and 5-yr horizons down from 4.8% and 3.9%, respectively. 

This week’s labor market data leaned a bit on the weaker side but didn’t signify any meaningful shift. Jobless claims came in higher than expected at 229k. It’s the third straight weekly increase for initial claims and is just below the YTD high, though the absolute level is relatively low. Continuing claims also ticked up but remained below 1.8ml. The ADP weekly job report showed 29k private jobs/week were added over the past 4 weeks, roughly inline with the prior reading of 30.5k, which was revised down from 35.75k. Within the NFIB Business Optimism survey job openings and hiring plans dropped to lowest level in six years.

This leads into next week’s FOMC Policy decision which will be Kevin Warsh’s first as Chairman. The recent economic data does not support the rate cuts that he discussed during his interview process leaving him in a difficult spot with a demanding boss. If the boss can craft a resolution in the Strait that would potentially make his job a little bit easier. The market widely expects the statement to evolve, removing the easing bias, which drew three dissents last meeting. With the head of dissenter Island, Stephen Miran, is off the Committee there is a chance we see a unanimous vote. It will be interesting to see how Chair Warsh positions himself, but I would expect any of the changes he has pushed for - change in communication and balance sheet management - to evolve over time. One of the dovish talking points the Chair had during his interview process was his view that AI would act as a structural disinflationary force. That may end up being the case down the road but during the current Capex-Boom phase we’re in now, it is having the opposite effect (see below). 

Yields have moved lower this week mostly in response to the geopolitical headlines with some flattening of the curve as markets have walked back some of the hawkish Fed expectations. 

Global Equities - it was a mixed week around the globe with tech heavy indices in Asia underperforming. 

The Federal Reserve will hold its first interest rate meeting under new chair Kevin Warsh on Wednesday. With the decision to keep rates unchanged all but a done deal, the focus will be on how Warsh conducts his first post-meeting press conference compared to Powell. Retail Sales, Industrial Production, Housing Starts and Sales and the weekly jobless claims will also hit the tape next week. Markets will be closed on Friday for Juneteenth. Most importantly, we’ll find out if the Knicks can bring home that championship that’s been 53 years in the making. One way or another the NBA Finals wraps up by the end of the week. Game 5 is on Saturday. Go Knicks!    

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