Despite the NYSE’s trading volume being relatively low throughout the entire week, the stock market performed impressively. Contrastingly, the Nasdaq experienced higher-than-average volume almost every day. Even with the disparities in volume totals, the bias was clear – bullish sentiment ruled the stock market’s trading.

Favorable Economic Projections Fuel Bullish Market

What is driving this optimism? The belief that the economy will dodge a hard landing and the Federal Reserve is nearing the end of its interest rate hikes has continued to resonate with market participants. How is this supported? The June CPI, PPI, and Import-Export Price Indexes all demonstrated a market-friendly inflation trend, bolstering this belief. Additionally, the weekly initial claims report significantly undercut recession-like levels.

Impact of the CPI Report

The week’s most critical news story, the CPI report, was released before Wednesday’s market open and revealed a lower-than-anticipated 0.2% increase in both the overall CPI and the core CPI. This result bolstered stock prices, aligning with Fundstrat’s Tom Lee’s earlier predictions.

• Total CPI increased by just 3.0%, the lowest increase since March 2021
• Core CPI increased by 4.8%, down from 5.3%
• S&P 500 climbed as much as 100 points, reaching a high of 4,527.76

Isn’t it noteworthy that this happened despite decreased market rates and broad-based buying interest?

Upcoming Special Rebalancing of the Nasdaq 100

After last Friday’s close, the Nasdaq announced a special rebalancing of the Nasdaq 100 set for July 24 to address overconcentration resulting from the “Magnificent Seven” gains. This marks the first special rebalancing since May 2011. Despite an initial sluggish start, mega-cap stocks rebounded and outperformed the S&P 500 as a whole.

Impressive Performance Across the Board

The week saw gains in all 11 S&P 500 sectors, ranging from 0.6% (energy) to 3.4% (communication services). Isn’t it a signal that the market is healthy when every sector is performing well?

Meanwhile, the start of Q2 earnings reporting period saw companies like Delta Air Lines, PepsiCo, JPMorgan Chase, Wells Fargo, Citigroup, and UnitedHealth beat consensus earnings expectations.

• Russell 2000: +3.6% for the week
• Dow Jones Industrial Average: +2.3% for the week
• Nasdaq Composite: +3.3% for the week

Fed Funds Futures Market Response

In the wake of Wednesday’s favorable CPI report, the fed funds futures market received a boost, effectively eliminating the likelihood of any further rate hikes after the July meeting. Yet, some Fed officials remain reluctant to dismiss a second rate hike, preferring to await more information. The stock market and the fed funds futures market, however, seem to embrace the “one-and-done” philosophy.

Downward Trend for the U.S. Dollar

The dollar faced additional pressure this week due to perceptions that other central banks, such as the ECB and Bank of England, still have more ground to cover in their rate-hike campaigns. Consequently, the U.S. Dollar Index took a substantial hit, falling 2.4% to 99.96.

Commodity Prices on the Rise

Despite some disappointing data from China prompting calls for more policy stimulus, commodity prices saw a boost thanks to the soft-landing outlook. Copper and oil prices surged 3.8% and 1.9%, respectively. Could this be another indication of the strength of the market?

Summary of the Week’s Performance

This week’s performance could be described as a balancing act, juggling bullish market sentiment, favorable economic data, and the upcoming Nasdaq rebalancing. On the whole, the week was undeniably successful. However, the question remains: Will this upward trend persist? As market watchers, we eagerly await the next developments. But for now, we celebrate the stock market’s good week.

CALENDAR & MOVERS

• Tuesday, Retail Sales (MoM) (June)
• Wednesday, Building Permits (June)

This week, the second-quarter earnings season begins with the “Magnificent Seven” growth and tech stocks, including Tesla (TSLA), taking the lead. These seven powerhouses, boasting significant growth between 40% and more than 200%, have propelled this year’s U.S. stock market rally. Should their mega-cap earnings fail to meet high expectations, it could potentially rock equity indexes. Other major companies, including Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), and Netflix (NFLX), are also due to publish their quarterly reports this week.

US Economy Outlook

This week is set to bring updates on several key U.S. economic metrics. Tuesday’s June retail sales data is forecasted to reflect a 0.5% increase, primarily fueled by better auto sales. Additionally, investors are set to receive insights on the housing market through reports on building permits, housing starts, and existing home sales. The anticipated continuation of weak core activity in regional manufacturing reports is also noteworthy.

China’s Economic Situation

Recent data from China indicates a slowdown in the country’s post-pandemic recovery, sparking expectations for additional stimulus from Beijing. The second quarter’s annualized GDP growth rate, a disappointing 6.3% as compared to the first quarter’s 4.5%, fell short of the predicted 7.3%. This slump, caused largely by the spring’s lockdown measures, has raised concerns over the future of the world’s second-largest economy, amplified by deflationary pressures and decreased trade.

UK Inflation

The upcoming June inflation report from the UK will be a focal point for investors, as it could influence the Bank of England’s decision on interest rates. The headline consumer price index (CPI) is projected to decrease from 8.7% in May to 8.2% year-over-year due to lower food and fuel costs. The services sector is predicted to maintain its post-COVID peak at 7.4%, with a minor decline in core inflation. According to the minutes from its June meeting, the Bank of England mentioned potential additional tightening if persistent inflationary pressures are seen, especially in the CPI for services. This may validate predictions of a 50 basis point rate hike if these expectations are met.

BONDS

Last week the bond market saw a major bond selloff due to strong U.S. job creation data, which raised expectations for more interest rate hikes and sent government bond yields to multi-year highs. Despite job creation numbers falling short in June, wage growth led to a rise in 10- and 30-year Treasury yields. Despite a slowing labor market, traders expect the Federal Reserve to raise interest rates later in July. Later in the week, inflation decelerated to 3%, leading to a rally in the bond market and a decline in yields, though rates are expected to remain elevated.

COMMODITIES

Oil & Energy

After a challenging first half, oil prices are rallying due to positive macroeconomic statistics and easing inflation, signaling a favorable environment for risky assets. Despite the International Energy Agency’s lowered demand growth forecasts, global demand is expected to reach a record high of 102.1 million barrels per day this year. OPEC shares a similar outlook, projecting demand to reach 102 million barrels per day in 2023. Oil prices have risen for three consecutive weeks, with Brent crude surpassing $80 per barrel and trading around $81, while US WTI is at approximately $76.60.

Precious Metals & Gold

Base metals are also benefiting from a more favorable environment, driven by the weakening US dollar and declining metal inventories. These factors support copper, aluminum, and zinc prices. Despite mixed Chinese trade data, most metals on the London Metal Exchange experienced a positive week. Peru’s monthly copper production reported a 5.8% month-on-month increase, following Chile’s earlier report of a slowdown in copper supply. In the precious metals market, gold has broken through its previous consolidation zone and is currently trading around $1955 per ounce.

CRYPTOCURRENCY

Last week, the cryptocurrency market rebounded, with the market cap surpassing $1 trillion, suggesting a potential end to the crypto winter. Ripple Labs had a partial legal victory against the U.S. SEC, causing a surge in XRP’s value. Despite a slight downturn earlier in the week, most crypto assets, including Bitcoin, showed significant gains by July 14. Upcoming economic events and institutional activities also influenced the market trend. Last week, the base metals market performance was primarily driven by factors like the weakening US dollar and declining metal inventories rather than cryptocurrency trends.