Weekly Market Roundup
The week delivered two distinct shocks in quick succession. Earnings from several large technology companies disappointed, with results from Google and Tesla falling short of elevated expectations and sending the Nasdaq down sharply mid-week. The following day, the administration announced new trade tariffs on roughly 60 countries, adding a fresh layer of uncertainty. The Nasdaq fell -2.08% on the week while the S&P 500 declined -0.41%. The Dow Jones and international equities bucked the trend with modest gains, as the selling was concentrated in technology and high-growth names.
The more consequential development was in rates and bonds. Yields broke to fresh highs for the cycle, with the 10-year Treasury rising above 4.70% and the 30-year pushing to 5.17%, nearly erasing the post-CPI softness from the prior week entirely. The driver was a combination of continued oil price pressure, tied to the ongoing situation in the Middle East, and renewed inflation concerns sparked by the new tariff announcements. Notably, both stocks and bonds declined together on the week, removing the typical diversification benefit that balanced portfolios rely on. The Bloomberg U.S. Aggregate fell -0.50% on the week and has moved into negative territory for the year.
The VIX closed at 18.58, approaching the upper bound of the lower-volatility range. Bond market volatility rose sharply over the month. The week also unfolded with limited corporate buying support, as most S&P 500 companies are still inside their earnings blackout window.
The calendar is the most consequential of the summer. The FOMC meets Wednesday, with the rate decision at 2:00pm ET and the press conference at 2:30pm. A rate hike this week is not the consensus expectation, but the tone of the statement, how many members dissent, and what the committee signals about the path forward will be closely watched. The market has been moving to price in the possibility of additional tightening later this year, and the press conference language will either accelerate or temper that view. Thursday brings GDP for Q2 and the PCE Price Index, the Fed's preferred inflation measure, which together will either support or complicate the Fed's narrative the day after they speak. OPEC also meets Tuesday, which matters given oil's recent move. ADP employment on Tuesday, jobless claims Thursday, and the University of Michigan consumer sentiment survey Friday round out a very full week.
We want to be direct about the current environment. Last week we wrote that we were watching our bond positioning carefully given the tension between the disinflation backdrop and geopolitical headwinds in the long end. This week, those headwinds showed up in force. Rates broke to new cycle highs, oil continued moving higher, and bonds offered no offset to equity weakness. That is not a dynamic we take lightly, and it is exactly the scenario we flagged as a risk worth monitoring.
There is some reason for measured optimism heading into this week on the geopolitical front. Airstrikes between the U.S. and Iran paused over the weekend, and diplomatic conversations are reported to be resuming. As we have written over the past 18 months, this conflict has moved repeatedly through cycles of escalation and de-escalation. Whether this latest pause holds is the most important variable for oil, rates, and broader market stability as the week begins.
On the Fed, while a rate hike on Wednesday is not the base case, the recent move in oil and the renewed inflation concerns from this week's tariff announcements mean we would not be surprised if the committee acts. What we are focused on regardless is the number of dissents and the language the committee uses around future meetings. If the statement reflects a growing appetite for additional tightening later this year, that is a meaningful development for how the market prices bonds going forward. GDP and PCE on Thursday will either give the Fed cover to stay patient or build the case for action. We remain disciplined and attentive to how this week's data and Fed communication develop.
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