Sharing Is Caring: Market Performance Breadth Improves

Weekly Market Recap 

Markets traded lower last week, though there was relative strength beneath the major equity indexes. The S&P 500 and Nasdaq both ended the week lower as the largest tech stocks sold off, while the Russell 2000 small-cap index, along with the value and equal-weight factors, produced modest gains. Technology, Communication Services, and Consumer Discretionary were the worst performing sectors as mega cap stocks like Apple and Microsoft traded lower. The eight remaining sectors finished higher, led by defensive areas of the market.  Mag 7 is down 11% in June and off 5% YTD. Software stocks (Ticker IGV) are worse, down 18% in June and 17% YTD. Meanwhile, the other 493 stocks of the S&P 500 Index are flat in June and up 13% YTD. The leaders have become the laggards as performance as broadened. 

Bond prices gained as Treasury yields fell despite a hot inflation report, with investors expecting inflation to ease after the recent decline in oil prices and higher for longer short term rates dampening growth expectations. Oil fell nearly -5% as traffic in the Strait increased, while the VIX, a measure of expected market volatility, drifted higher as the major indexes declined. 

Key Takeaways 

1. Semiconductor stocks, one of this year’s most crowded trades, remain volatile. The group sold off sharply Monday and Tuesday, as investors unwound leverage that had built in the industry. Semiconductors have significantly outperformed the broader market this year, but the popularity cuts both ways: when sentiment turns, the moves are large in both directions. As an example, the mood shifted again last Wednesday evening, when Micron, a leading memory-chip maker, reported record quarter revenue. Its shares jumped more than +15% overnight into Thursday morning. Implication – AI infrastructure spending is the engine behind semiconductor companies’ profits and share price gains, and the industry has benefited from the hundreds of billions of capex. The trade has become popular and heavily leveraged, which helps explain in part it’s volatility. 

2. Inflation data runs hot after oil price spike. The Federal Reserve’s preferred inflation gauge rose to +4.1% year-over-year in May, the highest reading in nearly three years. Higher energy prices tied to the Middle East conflict were the main driver, but many economists believe May could mark the peak before inflation eases over the summer. Despite those projections, the Fed has shifted its policy stance due to inflation remaining above its 2% target. After signaling earlier this year that rate cuts were likely, officials have taken cuts off the table for 2026, and markets now see a possible rate hike later this year. Implication – The takeaway is that the Fed’s rate-cutting cycle could remain on pause. With the Fed now prioritizing inflation over growth and the labor market, rates could remain elevated, and potentially move higher before they come down. 

3. Energy prices have returned to pre-conflict levels as the Strait reopens. Oil prices have now given back the entire spike tied to the Middle East conflict. U.S. crude fell to around $70 a barrel this week, its lowest since the conflict began in late February, as oil tankers resume moving through the Strait of Hormuz and shipping starts to normalize.  However, rates remain above pre-conflict levels.  Implication – Lower energy prices ease pressure on household budgets. It is also the primary reason inflation is expected to cool in the months ahead, since the same energy spike that pushed inflation via a supply shock to a three-year high is now reversing. 

4. Q1 2026 GDP growth was revised higher. The government’s final look at first-quarter economic growth came in at +2.1%, up from an earlier estimate of +1.6%. The figure covers January through March, which predates most of the energy shock from the conflict and reflects where the economy stood earlier in the year. Implication – The economy entered 2026 on firmer footing than previously estimated, an encouraging data point even though it measures activity before the oil supply disruption. 

5. Business investment remained strong in May. Orders for long-lasting manufactured goods fell -4.5% in May, but nearly all of the decline came from a drop in volatile aircraft orders following an unusually strong April. A measure of broad business investment, which excludes aircraft orders and defense spending, rose by more than expected. Implication – The headline looks worse than the reality. Underneath the noise, businesses continued to invest, a quietly encouraging sign for the economy and for corporate profits.  We believe fundamentals are the key determinant of share prices overtime.