|
♦ Waterloo Capital ♦
Last Week
on Wall Street
|
|
S&P 500
7,483
▲ +1.75% WK
|
DOW JONES
52,899
▲ +1.97% WK
|
NASDAQ
25,832
▲ +2.11% WK
|
10-YR YIELD
4.46%
▲ +8 BPS WK
|
|
|
LEAD Markets & Macro
|
Four trading days, a record quarter closing out, a chip complex finally taking a breather, and the oldest index on the board spending the short week setting records. The market went into the holiday with new leadership.
|
Four sessions, a Friday off for Independence Day, and a changing of the guard. The quarter that closed Tuesday was the strongest the major indexes have printed since 2020, built in large part on the chip complex. The week that followed belonged to the Dow, which set three record closes in four sessions while the same semiconductor stocks that carried the first half sold off for two straight days. All three majors still finished the shortened week higher, which tells you the money did not leave; it moved.
The rotation had help from the macro calendar. Crude has nearly finished its round trip, with WTI trading back under $70 and close to pre-war levels as tanker traffic through the Strait of Hormuz normalizes and negotiators prepare another round of talks. The new Fed chair, Kevin Warsh, used the ECB's annual forum in Portugal to decline forward guidance entirely, telling investors to read the data rather than the Fed, while acknowledging that "prices are too high." Thursday's jobs report, released a day early because of the holiday, gave the rate market plenty of data to read; more on that below.
For diversified portfolios, weeks like this one are the argument. The chip trade that did most of the year's heavy lifting took its first real breather, and the slack was picked up, almost point for point, by the parts of the market that spent the spring being called dead weight: health care, staples, financials, the industrial blue chips. A balanced book did not need to guess which half of the tape would show up this week, because it owned both, and the shortened week still ended green across the board.
|
BOTTOM LINE
The best quarter since 2020 closed out, leadership rotated from the chip complex to the blue chips, and the holiday-shortened week still ended higher across the majors. The week paid whoever owned the whole tape rather than the hottest corner of it.
|
|
|
By the Numbers
| ▸ |
Q2 in the books: the S&P 500 rose roughly 14% and the Nasdaq about 20%, the strongest quarter for the majors since 2020 |
| ▸ |
First half: the Dow gained 8.9%, its best opening half since 2021; the S&P added 9.6% and the Nasdaq 12.8% |
| ▸ |
Small caps: the Russell 2000 surged nearly 22% in the first half, its best start since 1991 |
| ▸ |
Crude round trip: WTI traded back under $70, near pre-war levels, as Hormuz tanker traffic normalized |
| ▸ |
ISM manufacturing: 53.3 for June, with the prices-paid index dropping to 73.0 from 82.1 |
| ▸ |
VIX at 16.8 heading into the holiday weekend, still anchored in the mid-teens |
|
|
|
· Two Stories That Moved the Tape ·
The Week's Defining Headlines
|
|
|
STORY 01 Macro · Labor Market
|
The key takeaway,
the June payrolls report landed a day early for the holiday and printed at half the consensus, with the prior month revised down for good measure. A year ago that combination read as trouble. This week, with rate traders debating hikes instead of cuts, a cooling labor market read as breathing room.
|
The economy added 57,000 jobs in June against a Dow Jones consensus of 115,000, and May's originally chunky gain was revised meaningfully lower. The unemployment rate, in the report's one genuine wrinkle, ticked down to 4.2% instead of holding steady as forecast. The release came Thursday morning rather than Friday because markets are dark for Independence Day, which meant the month's most important data point arrived with a half-staffed Street and a bond market that closed at 2 p.m.
The reaction ran through the front of the curve. Rate traders came into the print leaning toward a hike by fall, a legacy of the inflation the oil shock left behind, and by the close the market-implied odds of any summertime move had thinned considerably. Two-year yields fell while the long end barely budged. Kevin Warsh had spent Wednesday in Portugal declining to give investors forward guidance, saying the data would have to do the talking. On Thursday the data talked, and what traders heard was a central bank that can afford to wait. Equities split the difference: the blue chips rallied to a record on the print while the chip complex kept selling, which made Thursday less a verdict on the economy than another chapter of the week's rotation.
|
DATA THAT DROVE THE STORY
| ■ | June nonfarm payrolls: +57,000 vs. Dow Jones consensus of 115,000 |
| ■ | Unemployment rate: fell to 4.2% from 4.3%, against forecasts for no change |
| ■ | Revisions: May's gain marked down to 129,000 from the originally reported 172,000 |
| ■ | Rate reaction: the 2-year yield fell 5 bps to 4.11%; the 10-year eased to roughly 4.46% |
| ■ | Fed pricing: rate traders had priced better than 60% odds of a September hike heading into the report |
| ■ | Calendar quirk: released Thursday, a day early, with the bond market closing at 2 p.m. ahead of July 4th |
|
Source: CNBC: 2-year yield eases as light jobs report shifts Fed expectations →
|
|
|
|
STORY 02 Indexes · Market Rotation
|
The key takeaway,
the Dow added Alphabet before Monday's open and closed above 52,000 for the first time that afternoon. By Thursday's bell the 130-year-old benchmark had put up three record closes in four sessions, powered by exactly the stocks the AI trade had left behind.
|
Alphabet's first day as a Dow component was a strong one: the stock climbed nearly 5% and the index added 306 points to notch its first close ever above 52,000. The addition modernizes a benchmark long criticized for underweighting the technology that drives the broader market, and the newest member started pulling its weight before lunch. Sentiment got a second boost the same morning from the Supreme Court's decision to leave Fed governor Lisa Cook in her seat, a ruling markets took as a vote for central bank independence.
The record run was the mirror image of what happened to the chip complex. Semiconductors, up more than 80% as a group in the first half, sold off hard on Wednesday and again on Thursday as investors took profits and reassessed how much AI infrastructure spending is already in the price. The money that came out did not leave the market; it showed up in health care, consumer staples, financials, and the industrial blue chips, the exact composition the Dow overweights. Thursday's finish, nearly 600 points higher to another record on a day the Nasdaq fell, was the sharpest single-day expression yet of a rotation that has been building since early June. The index that spent two decades being called a relic ended the first week of the second half as the market's leader.
|
DATA THAT DROVE THE STORY
| ■ | Dow milestone: first-ever close above 52,000 on Monday, followed by two more record closes through Thursday |
| ■ | Alphabet's debut: the stock climbed nearly 5% in its first session as a Dow component |
| ■ | Thursday's finish: the Dow added 594 points, about 1.1%, to a fresh record after the soft payrolls print |
| ■ | Chip unwind: the VanEck Semiconductor ETF fell 5.2% Thursday, a second straight decline, after the group's 80%-plus first-half surge |
| ■ | Rotation tell: health care, staples, and financials led the buying while semiconductor and memory names lagged |
| ■ | Nasdaq nuance: the Composite still finished the shortened week higher, carried by Monday's 2% rebound |
|
Source: CNBC: Dow closes above 52,000 for the first time, powered by new member Alphabet →
|
|
|
|
· Other Things Worth Knowing ·
Around the Water Cooler
Six stories from this week worth your morning coffee.
|
|
|
|
Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.
Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This newsletter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Waterloo Capital to be reliable. The letter may contain "forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon information in this letter is at sole discretion of the reader. Please consult with a Waterloo Capital financial advisor to ensure that any contemplated transaction in any securities or investment strategy mentioned in this newsletter aligns with your overall investment goals, objectives and tolerance for risk. Additional information about Waterloo Capital is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary report which are accessible online via the SEC's Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 133705. Waterloo Capital is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice.
|
|