Good morning,
U.S. stocks have surged so far this week, with the S&P 500 up approximately 2.9% and the Nasdaq gaining 3.7%—both nearing or reaching record highs. This rally has been fueled by strong earnings, falling Treasury yields (resulting in rising bond prices), and a reduction in perceived geopolitical risks. Technology stocks continue to lead, buoyed by optimism around increased capital spending on AI initiatives. Easing trade tensions are also contributing, with only seven trading days remaining before the July 9th trade deal extension deadline. The White House indicated this morning that around 10 agreements are already in place, with ~20 more still under negotiation.
Let’s be clear—FOMO (Fear of Missing Out) is a significant driver this week. Hedge funds, particularly macro funds, are ramping up exposure to U.S. equities (Bloomberg data), while retail investors appear to be more cautious. In today’s hyper-connected environment, the fear of underperforming a peer or competitor can quickly shift institutional positioning. With stocks at new highs, those who were short or underweight are now being forced to reconsider. Even if their core view hasn’t changed, there’s growing recognition that momentum can become self-fulfilling—transforming a wall of worry into the foundation of a new bull market.
This morning, the Fed’s preferred inflation gauge—the PCE Index (Personal Consumption Expenditures)—was released. Consumer spending came in at -0.1%, suggesting a slight economic slowdown, while core inflation rose by 0.2%. On balance, the report offers little justification for the Fed to initiate rate cuts based on this data alone. Futures dipped slightly in response but remain up ~0.30% ahead of the open.
It’s a classic Summer Friday, and trading desks will likely thin out as leadership heads for the beach.
Be well,
Mike