The main US equity indexes posted a third consecutive weekly gain, led by technology and AI optimism, despite a volatile week. The S&P 500 rose 0.4% and the Nasdaq edged up 0.1%, supported by strong Q2 earnings — S&P 500 earnings growth nearly hit 50% YoY, the best since 2021. The Dow Jones lagged at -0.6%, dragged by value sectors and weak consumer activity. The Russell 2000 outperformed at +1.1% as investors rotated into small and mid-caps.
New inflation prints calmed rate hike fears, but consumer data showed signs of weakness. July CPI came in line with expectations, while Core CPI cooled to 2.5%. Meanwhile, retail sales print came at -0.6% MoM, the worst in over a year, coupled with the University of Michigan sentiment index falling to 51.0. As a result, the probability of a September Fed rate hike dropped from 50% to 30%, cementing expectations of a pause. Treasury yields reflected the divergence — the 2Y Treasury fell 2bps in the week, while the 10Y and 30Y bonds remained sticky, widening around 5bps.
Geopolitical risk dominated the weekend, with escalation intensifying, which should set the tone for the week ahead. Oil prices reacted, as hopes of diplomatic talks to reopen the Strait of Hormuz reversed sharply following new attacks in the region, with Brent moving near $90. The coming week also centers on FOMC Minutes, earnings, and the US-Iran peace negotiations.
