Economic data last week included recent month improvements in consumer and producer inflation, as well as consumer sentiment, tempered results in industrial production and retail sales, and a mixed bag of housing data. Based on flare-ups in the Middle East, a variety of economic data points have been prone to sharp back and forth reversals by month.

Equities fell back globally last week, with a flare-up in Middle East tensions and easing in AI-related sentiment. Bonds were little-changed, along with minimal yield movements. Commodities were driven higher by another double-digit spike in crude oil prices.

U.S. stocks fell for the week along with renewed tensions in the Middle East, as military strikes resumed and the U.S. administration vowing to reinstate a Strait of Hormuz blockade, including a 20% surcharge on ‘all cargo.’ This was coupled with Fed official comments surrounding potential hawkishness in future policy, although cooler CPI may have helped for the time being, as well as some pullback in the exuberance around AI and/or profit-taking leading to a pullback in the broad group globally. By sector, the sizable -4% decline in technology dominated the week (related to TSMC’s planned further capital spend, and not helped by IBM being down over -25% after disappointing contract/consulting results), followed by consumer discretionary. From the peak around Jun. 22, semiconductor stocks have corrected by over -20%, although the year-to-date gains remain substantial. Partially offsetting these for the week were gains in energy of 5%, along with another reversal upward in oil prices, as well as positivity in consumer staples and financials, with the latter showing strong loan results in recent earnings results. Real estate also rose a few percent.

Earnings season for Q2 started last week, with only 10% of S&P 500 companies having reported so far, but year-over-year growth expectations lie at a rate of 24.7%, per FactSet. That would be down from the 29% earned in Q1, but remains ebullient, nonetheless. By sector, energy is now expected to lead, at a growth rate of 125% (!), thanks to the tailwind of this year’s oil price spike, followed by technology (63%, half of which being in semiconductors, due to strong AI chip and memory demand) and materials (35%). Bringing up the rear is health care, with expectations of a -18% earnings decline, highlighted by several notable downward revisions for Merck and Eli Lilly. In parsing out the estimates further, FactSet noted that the Magnificent 7 company earnings were expected to grow by 31%, with the ‘other 493’ at 23%. Beyond that, removing expected top index contributors Micron Technology and Nvidia from the index would pull the growth rate down to 17%. That would be still quite robust but further reminds us of the high levels of today’s current concentration in fundamentals and leaves little room for potential company-specific disappointment.

Foreign stocks were down on net, with a small gain in the U.K. offset by declines around -4% in Japan and emerging markets. Japanese stocks were affected by weaker technology sentiment, with the added challenges of Middle East oil import supply concerns having ramped up again, as well as the challenges of a weaker yen and multi-decade high 10-year bond yields that have started to close the gap with rates in other developed markets. In EM, while a variety of larger nations saw minimal change for the week, the overall index was brought down by AI- and semiconductor-focused South Korea and Taiwan falling 5-10%, with the former also raising interest rates by a quarter-percent in response to recent strong economic growth, and experiencing concerns about market speculation and retail margin account stress.

Bonds were mixed for the week, with little change in the underlying U.S. Treasury yield curve, and governments and floating rate bank loans outperforming corporates. After rising early in the week, yields fell back along with the CPI report coming in quite a bit softer than expected, removing some hawkish Fed fears for now. Foreign bonds generally fell back, despite a weaker U.S. dollar.

Commodities rose broadly last week, led by a double-digit gain in energy, while precious metals fell a few percent. The headline news was dominated by crude oil prices spiking again by 15% from recent trough-like levels of $71 up to $82/barrel, with a renewal of military actions, and threats of Hormuz closure, clawing back some of the recent decline as a hoped-for peace deal appears to be on the rocks.

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Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.