Good morning,
Last week’s holiday-shortened, four-day trading week saw most major equity indices outperform the S&P 500, which gained 0.96%. The Nasdaq, Russell 2000, Developed International, and Emerging Markets indices returned +2.44%, +1.24%, +0.76%, and +4.16%, respectively.
A host of political headlines over the extended weekend—from both the Middle East and the United Kingdom—were expected to impact markets this morning. So far, they have not.
The end of UK Prime Minister Keir Starmer’s tenure had been widely rumored last week but became official this morning. His successor will become the seventh prime minister since the Brexit vote a decade ago. None of the previous six have materially altered the country’s economic trajectory or broader social sentiment, and there are currently no obvious standouts waiting in the wings.
Meanwhile, developments in the Middle East have likewise left little imprint on financial markets this morning. Investors may simply be experiencing a degree of geopolitical fatigue. Instead, attention remains focused on the aftermath of last week’s hawkish Federal Reserve messaging. The short end of the Treasury curve continues to reflect that reality, with the 2-year Treasury yield trading near its highest level in eighteen months.
There is little on today’s economic calendar likely to move markets. The remainder of the week will be highlighted by Micron’s earnings report on Wednesday and ongoing developments surrounding a potential final agreement with Iran. Investors will also be watching whether oil prices can continue their recent decline.
Last week, Apollo’s highly regarded Chief Economist, Torsten Slok, published a provocative headline in his daily note: “Strip Out AI and Energy, and the S&P 500 Is Down Year-to-Date.”
That observation raises an important question: Is narrow market leadership the proverbial canary in the coal mine signaling that a market top may be forming in the months ahead?
Second-quarter earnings season begins in roughly three weeks, unofficially kicking off on July 14. Expectations remain elevated. If earnings come through and market participation broadens beyond AI and a handful of leadership stocks, we can likely dismiss concerns about narrowing breadth as premature. However, if earnings disappoint and participation fails to expand through July, investors may have a more meaningful concern on their hands as this mature bull market advances into its next phase.
Be well,
Mike