Weekly Market Roundup
Markets navigated one of the most volatile weeks of the year, ending higher across the board despite enormous intraweek swings. The S&P 500 gained +0.66%, the Nasdaq +0.71%, and the Dow Jones +1.31%, with small caps meaningfully outperforming as the Russell 2000 surged +3.93%. The driver was not economic data, it was geopolitics. Iran war headlines moved rapidly in both directions throughout the week, pushing markets sharply up and then sharply down with little regard for fundamentals.
The week's defining moment came Thursday, when ceasefire headlines sparked a reflexive recovery rally across equities. The VIX, which had closed above 20 the prior week, pulled back to 17.68, moving back toward the lower-volatility range where it spent most of the spring. The intraweek volatility was significant in its own right, however, as one-month realized volatility crossed above three-month realized volatility during the week, a technical signal indicating that the market's recent turbulence is not simply background noise.
The most meaningful macro development was in the bond market. Yields fell across the curve into Friday's close, with the front end leading the decline, as the data began to build a case that inflation expectations have peaked. Oil moved back to a bearish trend midweek, reinforcing the developing disinflation read. The Bloomberg U.S. Aggregate gained +0.52% on the week, reflecting the bond market's positive response.
Wednesday's FOMC rate decision and press conference is the week's most important event. The meeting arrives at an interesting moment, with yields moving lower and the inflation picture beginning to soften. How the Fed characterizes that shift, and whether it signals any change in its forward posture, will set the tone heading into summer. Retail sales on Wednesday will offer a concurrent read on the consumer. Industrial production on Monday, housing starts and ADP employment on Tuesday, and jobless claims and the Philly Fed on Thursday round out the calendar. Markets are closed Friday for Juneteenth.
The week was a reminder that geopolitical headlines can move markets as forcefully as any economic data release, and that the path through volatility is rarely a straight line. That equities finished higher despite the intraweek turbulence reflects underlying resilience, and the VIX pulling back is an encouraging development. We remain constructively bullish, but are watching the macro backdrop closely as we move toward the back half of June. With another earnings season approaching, we are mindful that the rate of change in results will matter as much as the level. Companies will be measured not just against expectations, but against a strong comparable period from a year ago. Wednesday's FOMC decision is the week's key signpost, and how the Fed frames the inflation picture in a softening environment will be closely watched.
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Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com