The Setup & Where to Focus

Stocks lifted to all-time highs last week following the apparent resolution of the Israel-Iran conflict, along with renewed enthusiasm around the AI trade. 

• The S&P 500 jumped 3.5% to close at a record high on Friday, the first since February 19. The Nasdaq Composite outperformed, gaining 4.3%, also ending the week at an all-time high. 

• Both the S&P 500 and Nasdaq had their best week since mid-May, with the first half of the year coming to an end later today. 

The Cboe Volatility Index (VIX) fell to its lowest closing level since the S&P 500’s previous peak back on February 19, barely above the 16 mark. 

• Still, it will be an action-packed holiday-shortened week of jobs data and key survey indicators. 

• Fed speak will also litter the tape, and with emerging doves on the Federal Open Market Committee (FOMC), traders will be particularly tuned in.

Zooming in on the sectors, Communication Services (XLC) scored the biggest gain. 

• The ETF rose 4.7%, which is gaudy on its own, but the actual S&P 500 Communication Services sector climbed 6.2%. The difference is that US-listed ETFs have specific concentration caps, so juggernauts like Alphabet (GOOGL) and Meta Platforms (META) are weighted less in funds than they are in the actual sector index.

• It’s a quirk, but it doesn’t matter all that much for investors heavily allocated to mega-cap tech. GOOGL gained 7.1% last week, and META marched 7.5% upward. Not to be outdone, Netflix (NFLX), which some pundits toss in with the Magnificent Seven, notched a 7.5% rally of its own.

Information Technology (XLK) was the next best performer, clocking in at a 4.3% gain. 

• NVIDIA (NVDA) soared 9.7% to eclipse its January peak. 

• AI was back in the driver’s seat last week with the help of a strong earnings report from chipmaker Micron (MU). 

• Cooling tensions in the Middle East also allowed the focus to shift back to the region’s openness to participate in the AI arms race; recall President Trump’s international trip in May, during which he visited Saudi Arabia, Qatar, and the United Arab Emirates, handshaking and inking deals at every turn with US tech CEOs by his side.

Consumer Discretionary (XLY) was right up there with Info Tech; Amazon (AMZN) added 6.5% despite no real news. 

• In our analysis, the perceived easing of geopolitical tensions may have contributed to renewed investor interest in technology and growth-oriented stocks that performed well in the previous cycle.

• Even the more cyclical spots of Discretionary caught a healthy bid—Home Depot (HD) and Lowe’s (LOW) lifted by more than 5%, perhaps helped by softer interest rates.

Nine of the 11 S&P 500 sectors were positive last week. 

• The two laggards were Real Estate (XLRE) and Energy (XLE). We’ll begin with the former. Property stocks faced significant selling pressure on Wednesday and Thursday following Zohran Mamdani’s, a 33-year-old self-described democratic socialist, stunning win in the New York City Democratic primary. 

• Our Macroscope blog will dig into what it all means (stay tuned!), but the upshot is that what capitalists are left in the Big Apple could be on the hunt for new digs if the far-left, anti-free-market candidate wins in November. 

• NYC-focused REITs experienced substantial declines mid-week on the prospect of rent controls and additional regulations that could crimp the industry. Losses were so large that XLRE was materially impacted. 

As for Energy, WTI crude oil endured its worst week since March 2023, coming within pennies of the biggest weekly percentage decline since April 2020 (when oil prices briefly turned negative). 

• The large integrated companies, ExxonMobil (XOM) and Chevron (CVX), dropped 4-5%, and more risk-on exploration and production firms fared worse. 

• MLPs and midstream stocks held up fine, as those are more yield plays versus a bet on oil and natural gas.

Amid so many macro stories impacting large-cap niches, US mid- and small-caps performed well. 

• The SPDR Mid-Cap 400 ETF (MDY) rose 2.6%, and the iShares Russell 2000 ETF (IWM) tacked on 3.0%. 

• The SMIDs generally move in response to macroeconomic expectations and changes in interest rates. Though last Friday’s PCE inflation data and Personal Income and Spending figures were not exactly pointing to a full-throttle economy, investors looked beyond the noisy first-half GDP data to what could be a better growth situation in 2026. 

• Softer interest rates was the other bullish factor. The yield on the benchmark 10-year Treasury note fell for a third straight week, settling Friday at 4.28%, briefly touching the lowest rate since May 2. 

• Throw it all together, and the Regional Banking ETF (KRE), key for US small- and mid-cap stocks, sported a 5.1% return, its best week since January.

Despite tremendous alpha among big-cap tech stocks, international equities continued to power higher. 

• In previous instances of Mag 7 strength, we’d see underperformance from ex-US stocks. But not last week. The Vanguard FTSE All-World ex-US ETF (VEU) rose 3.4%, posting just a smidgen of relative strength to the Vanguard Total Stock Market ETF (VTI). 

• The US Dollar Index (DXY) dropped another 1.5% to close at its worst level since February 2022, helping dollar-denominated foreign stocks. The greenback aims to post its worst first-half performance since 1973, down 11% year-to-date. 

• A weaker dollar is allegedly part of the Mar-a-Lago Accord, an unofficial currency and trade construct, Allio detailed earlier this year. 

• Just last week, President Trump told reporters that he thinks adopting bitcoin as a payment option can take pressure off the US dollar. That’s a topic for another day, and as far as price action is concerned, foreign ETFs fared well in the final full week of June.

Turning to the bond market, Treasuries were in rally mode. 

• The president ratcheted up pressure on Fed Chair Jay Powell throughout the week. The POTUS continued to berate Powell, calling him an “average mentally person,” adding he has a “low IQ for what he does.” Trump encouraged him to resign, and the president says he already has three or four candidates in mind to replace Jay. 

• We might find out as soon as September when a “shadow” Fed chairman emerges. Once again, it’s easy to get bogged down by the intriguing macro narratives, but we’ll center on price action for now. Bonds rallied, interest rates dropped, and stocks rejoiced amid the Fed drama. 

• What was especially encouraging was equities and fixed income gained after a sort of stagflationary May PCE report. The PCE Price Index data and consumer spending figures from last month were worse than expected, but investors shrugged them off. Often, it’s not so much the data that matters, but how markets respond.

Finishing up with commodities, the Invesco DB Commodity Index Tracking ETF (DBC) posted its worst weekly loss since April 2020. 

• Oil prices obviously weighed heavily, but a 2.9% weekly give-back in gold (GLD) also hurt the materials and resource trade. Copper (CPER) was a bright spot. The industrial metal soared 4.6% to finish Friday at its second-highest weekly price, and it’s poised to print an all-time monthly high settle, above $5 per pound. 

• Ahead of the Independence Day weekend, RBOB gasoline futures (UGA) are back down to $2.07, about 30 cents below the peak from the previous weekend, implying a tame $3.10 national average price at the pump; it would be the cheapest retail gas for this time of year since 2020. 

• Finally, bitcoin (IBIT) was quiet over the back half of last week, hovering between $105,000 and $108,000. The world’s most valuable cryptocurrency dipped to $98,300 on May 22.

Weekly Calendar Look Ahead

It’s a very short week on Wall Street. Markets are closed on Friday for the 4th of July, and trading on the NYSE ends early on Thursday at 1 p.m. ET. But plenty of heavy-hitting macro data points come between now and then. Let’s get to it.

Monday’s data deck is light, but the final day of the first half features Chicago PMI right after the opening bell, followed by a speech from the Atlanta Fed’s Bostic, a centrist to slight hawk. He will likely tap the brakes on assertions for a July rate cut from Waller and Bowman last week. 

• More survey data hits at 10 a.m. ET with the Dallas Fed Manufacturing Index, and like the Chicago PMI, it’s likely to show dismal vibes. Treasury bill auctions before lunch shouldn’t stir up too much volatility. 

• Then, the media-friendly Austan Goolsbee (an on-again, off-again dove) speaks in the afternoon.

The real action gets underway on Tuesday. 

• Johnson Redbook retail sales growth dipped in last week’s report, so this week’s pre-market consumer spending update will be particularly interesting. 

• Later, as the opening bell rings, Powell participates in a policy panel before the European Central Bank Forum. Macro traders will pay close attention to comments about future rate policy, Powell’s feelings about Trump’s disparaging comments, and what a shadow Fed might mean for the US's current central bank chief. 

• With ears tuned to Powell, eyes will focus on the data. A final read on June S&P Global Manufacturing PMI comes at 9:45 a.m. ET, but the more market-moving PMI comes from the ISM at the top of the hour. The consensus calls for another sub-50 number, but it will of course be important to look under the hood at sub-components, including Prices Paid, Employment, and New Orders. 

• Construction Spending for May is released at the same time, along with the May Job Openings and Labor Turnover Survey (JOLTS). The April JOLTS report revealed a surprising increase in the number of job openings, so we’ll see if that happens this time. We expect softening in the employment market, which would mean fewer open positions.

Wednesday’s action will be early in the morning. Challenger Job Cuts was up 80% year-over-year in May, though the raw number of positions slashed fell sequentially from March to April to May. This could be the first real clue as to whether there were cracks in the labor market in June. 

• Then we’ll get more breadcrumbs at 8:15 a.m. ET when the ADP Employment Change hits the tape. Economists expect 80,000 private-sector positions added in the final month of the second quarter, which would be an increase from the tepid 37,000 figure reported in May. 

• Finally, June auto sales roll in throughout the day, and that will offer insight into the willingness of the consumer to spend on big-ticket items as tariffs trickle through the economy.

Thursday, although it's only a half-day, is the crucial session this week. 

• The June employment report is expected to show that the economy added 129,000 jobs, slightly weaker than May’s +139,000. The unemployment rate is seen holding steady at 4.2%, but we believe there could be upside due to changes in the labor force and some percentage rounding. Average hourly earnings may back down slightly from a hot 0.4% rise in May to 0.3% in June, bringing the year-on-year rate to 3.9%. 

• A weak report will increase the odds of a July cut, but a strong headline payroll gain may keep the Fed hawks in control. Our team will watch revisions to the previous two months closely—there has been a trend of downward changes to the prior months' initial numbers. 

• But that’s not the only labor market update as Initial and Continuing Claims come at the same time. First-time applications for unemployment insurance dipped in last week’s report, but Continuing Claims rose to the highest level since November 2021. 

• It’s clear that the jobs market is softening; it’s no longer accurate to call it “good, not great,” hence there’s a louder chorus calling for an easing of monetary policy. 

• The action isn’t over, as we’ll get June Services PMIs from both S&P Global and the ISM later in the morning, as well as Factory Orders for May.

Fiscal Policy Framework

It was crunch time on Capitol Hill. Republican lawmakers convened over the weekend to hash out the particulars of the One Big, Beautiful Bill (OBBB). It narrowly advanced a key procedural hurdle, which sets up a potential vote early this week. The OBBB must then go through the House before it can make it to President Trump’s desk by his July 4 soft deadline. 

Last week, the POTUS hinted that it’s OK if it’s late by a few days, and that might be needed, since there are significant political obstacles on the OBBB’s path from the Capitol building to the White House. The Senate’s 51-49 vote in favor of the OBBB was good enough (Senators Rand Paul and Thom Tillis broke from the Republican majority), but pressure from House fiscal conservatives to limit deficit increases makes it no slam dunk. The absolute deadline is the so-called X date, when the debt limit must be increased, which would come in August or September. For taxpayers, December 31 is when the original 2017 Tax Cuts and Jobs Act sunsets.

Also in clear view is the July 9 reciprocal tariff relief deadline. Last week, President Trump and Treasury Secretary Bessent hinted that there may be flexibility with that cutoff point. What’s more, it turns out that, according to the administration, there is already a trade deal framework in place between the US and China—markets rallied a bit on that macro nugget Friday morning. Labor Day may be a new goalpost. Bessent indicated that upwards of a dozen trading partners may seek new trade deals by the unofficial end of summer. We can’t rule out volatility in the days ahead, and markets briefly fell last Friday on news that Trump halted trade discussions with Canada over tax matters.

Risks and Opportunities

With stocks notching all-time highs to begin the second half, there could be some FOMO-buying ahead of the Q2 earnings season. Before we hear from the banks, though, Jobs Week on Wall Street will be the volatility catalyst. It’s not a cut-and-dry setup. Soft June employment numbers would increase the chance of a Fed rate cut on July 30. As it stands, there’s just an 18% chance of a quarter-point ease in four weeks. With Powell still in charge, our view is that a soft payrolls number and a higher unemployment rate would be negative for stocks and bullish for bonds. 

Historically, July has often been a positive month for equities; for example, the Nasdaq 100 ETF (QQQ) has finished higher in 14 of the last 15 Julys. A more cautious stance is often warranted in August and September, when volatility tends to perk up.  However, such historical trends are not a guarantee of future results and should not be the sole basis for any investment decision. For now, global stocks are in rally mode. Battle-tested after Liberation Day and the conflict in the Middle East, the bulls control the primary trend.

Quick Hits

• A record $20 billion was collected in tariffs this past month.

• US new home sales suffered the biggest drop since 2022, according to data released last week.

• June saw the best cross-asset rally since May 2024, with gains in stocks, bonds, and commodities.

• Earnings season begins next week, and analysts expect a modest 5% year-over-year EPS growth rate; we believe it may be closer to 10% once all reports are in.

• Forward S&P 500 EPS estimates are at a new high, $282, resulting in a P/E ratio of 21.9x

• There are four leading contenders for the Fed chair seat, including Treasury Secretary Bessent, but Kevin Warsh is favored slightly on Polymarket.

• The bond market prices in four rate cuts over the next 12 months as a dovish FOMC mutiny takes shape

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