Weekly Market Roundup
It was a week where large-cap technology held its ground while everything else struggled. The S&P 500 and Nasdaq posted slim gains of +0.52% and +0.62%, respectively, while the Dow, Russell 2000, and international equities all finished in the red. The Bloomberg U.S. Aggregate fell -0.56% as yields moved higher across the curve, with the 30-year briefly touching the 5% level. That yield backup was the defining dynamic of the week, creating headwinds for rate-sensitive areas of the market that had been performing well in recent weeks.
The move in rates was driven by a pickup in Middle East tensions that pushed oil prices higher mid-week, reigniting near-term inflation concerns and sending yields across the curve toward the upper end of their recent ranges. That said, oil's broader trend since spring remains firmly lower, and the underlying commodity picture has not materially changed. The dollar showed the first signs of its recent strength beginning to fade, with the index posting three consecutive days of lower highs, a development worth monitoring as a softer dollar would broadly support risk assets and commodities.
The VIX closed at 15.03, sitting deep in the lower-volatility range. Market structure remains supportive, with dealer positioning back in a configuration that tends to cushion rather than amplify intraday moves.
Tuesday's CPI report is the most consequential data release in weeks, and arguably the most watched print of the summer. Commodity prices, and oil in particular, have fallen sharply from their spring highs, and the expectation is that those declines will begin showing up meaningfully in the inflation data. A soft print would shift the conversation around the Fed, moving market pricing away from further tightening and toward a more accommodative posture heading into the second half of the year. ADP employment also reports Tuesday for a concurrent labor market read. PPI on Wednesday will round out the inflation picture. Retail sales and initial jobless claims on Thursday give us a look at the consumer and labor market, and the University of Michigan consumer sentiment survey on Friday closes the week.
The yield backup last week created some short-term turbulence for the defensive positioning we have been building, but we view it as noise driven by a geopolitical headline rather than a shift in the underlying trend. The bigger picture, falling commodity prices, a softening labor market, and a bond market that has been pricing in decelerating inflation for weeks, remains intact. What we are watching closely as a firm is whether Tuesday's CPI print is soft enough to begin shifting the consensus view on the Fed. For much of this year, the market has priced the Fed as biased toward further tightening. A meaningful disinflation reading could start to change that, moving the conversation toward cuts and creating a more accommodative backdrop for the second half of the year. That shift in consensus, if it comes, would validate the defensive and rate-sensitive positioning we have been building. We remain patient and focused on the data.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
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