This Holiday-Shortened Week Of Trading Saw The S&P 500 And Nasdaq Break Five And Eight Week Winning Streaks, Respectively.
Coming into the week, there was a growing sense that the market was due for a pullback, so losses were driven largely by normal profit taking activity after a big run.
Notably, mega cap stocks were still relative outperformers this week. One might have expected consolidation efforts to be focused more on mega caps, which have been leading all year. The market-cap weighted S&P 500 fell 1.4%.
By the end of the week, concerns about global growth and the lag effect of rate hikes by central banks had entered the market narrative.
Fed Chair Powell said in his semiannual monetary policy testimony before the House Financial Services Committee on Wednesday that there could be two more rate hikes by the Fed before the end of the year if the economy performs as expected. This was followed by Fed Governor Michelle Bowman (FOMC voter) saying in a speech that "additional policy rate increases will be necessary to bring inflation down."
Fed Chair Powell continued his monetary policy testimony before the Senate Banking Committee on Thursday. He didn't provide any new surprises in terms of monetary policy views, yet there was consternation among committee members regarding capital requirements for banks. That understanding undercut the bank stocks this week.
Weak regional bank components, along with the growth concerns, led to the underperformance of the Russell 2000, down 2.9%.
Several central banks announced increases in their policy rates, including the Bank of England (+50 bps to 5.00%), Norges Bank (+50 bps to 3.75%), Swiss National Bank (+25 bps to 1.75%), and Central Bank of Turkey (+650 bps to 15.0%). Those moves stoked concerns about global inflation and the lag effects of rate hikes potentially impacting global growth.
Piling onto the growth concern narrative, preliminary June manufacturing PMIs for Japan, Germany, the UK, the eurozone, and the U.S. all came in below 50 (i.e. the dividing line between expansion and contraction).
Some economic data for the U.S. was also on the weaker side this week. Existing home sales declined 20.4% year-over-year in May while the Leading Economic Index declined for the 14th consecutive month. Also, weekly initial jobless claims remain elevated above 260,000.
Housing starts, though, came in really strong relative to expectations. Total starts surged 21.7% month-over-month to a seasonally adjusted annual rate of 1.631 million units -- the highest since April 2022 -- while total building permits rose 5.2% month-over-month to a seasonally adjusted annual rate of 1.491 million, aided by a 4.8% increase in single-unit permits. In response, homebuilders outperformed this week.
Only one of the S&P 500 sectors logged a gain this week -- health care (+0.2%) -- while the real estate (-4.0%), energy (-3.5%), and utilities (-2.6%) sectors saw the largest declines.
Separately, trading volume was extremely heavy on Friday due to the reconstitution of the Russell Indexes
Nasdaq Composite: -1.4% for the week / +28.9% YTD
S&P 500: -1.4% for the week / +13.3% YTD
Russell 2000: -2.9% for the week / +3.4% YTD
S&P Midcap 400: -2.5% for the week / +3.5% YTD
Dow Jones Industrial Average: -1.7% for the week / +1.8% YTD