Economic data included mixed results for manufacturing and services PMI surveys, coupled with a drop in housing starts and further declines in consumer sentiment.

Equities saw gains around the world, with hopes for progress in the Middle East conflict, as well as eventually lower prices for energy. Bonds fared positively as yields pulled back. Commodities were mostly lower, led by a sharp drop in crude oil prices.

U.S. stocks continued to see gains, with the S&P 500 now up for eight straight weeks, the longest stretch in three years. Cyclical value and small caps outperformed large cap for the week, helped by rising hopes for more fruitful U.S.-Iran negotiations (being in perhaps the “final stages”) as well as continued positive sentiment around AI. By sector, gains were led by more defensive groups utilities and health care (Merck and Lilly), each up over 3%, followed by more tempered gains for consumer discretionary, financials, and technology, while communications services fell back by -2% for the week (Alphabet). Most other segments ended relatively flattish for the week. Real estate also gained several percent with interest rates coming back down. Closely-watched financial results for Nvidia outperformed on a revenue and earnings standpoint, but stock results didn’t reflect the fundamental positivity.

Foreign stocks were led by gains of several percent in Europe and the U.K., with hopes for Middle East resolution being the primary market driver in either direction in recent weeks. Emerging markets were also positive, with strong gains in Taiwan and South Korea continuing to be driven by semiconductor chip demand related to AI, offset by weakness in China, with markets disappointed about economic activity. Indonesian stocks sold off sharply, along with a 0.50% central bank rate hike, to help stabilize the currency, along with enhanced export controls for several key global commodities.

Bonds fared more positively last week, as yields stabilized across the U.S. Treasury curve, helping investment-grade debt in the U.S., while floating rate bank loans fell back a bit. International bonds were up strongly in developed markets, outperforming emerging markets slightly.

Bonds have sold off decently in recent weeks due to a number of factors, especially the longer-term variety not only in the U.S. but also in Europe. These include a more sustained than expected inflation impact from the U.S.-Iran conflict (keeping chances for higher policy rates higher), as well as continued expansionary government fiscal policies as revenues are challenged (from lower taxes, and, ironically, by the potential reversal in some tariff policies) relative to spending (which remains high).

Commodities fell back as a whole last week, as gains in industrial metals and agriculture were more than offset by a substantial drop in energy. West Texas crude oil corrected by -9% last week to $96/barrel, with Brent crude falling back by over -5%, along with hopes for productive U.S.-Iran negotiations and a normalization of the region’s commodity shipping traffic.

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