Last week, the major US equity indexes finished 1.5 to 2.3% higher, while the small-cap stocks Russell 2000 rose almost 5%. Housing and defense sectors had a strong week, while short-term treasury yields rose 5bps, driven by the strong jobs report that showed a lower unemployment rate than expected. The robust labor data led markets to reduce expectations for immediate Fed rate cuts.
Trump issued an executive order directing government-sponsored enterprises Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBS), targeting a decrease in 30-year mortgage rates. The announcement triggered a significant rally in mortgage and homebuilder stocks, signaling the administration's willingness to intervene directly in the sector. Additionally, Trump also called for a temporary 10% cap on credit-card interest rates.
Over the weekend, news emerged of a government investigation into the Federal Reserve, adding to growing concerns about the central bank’s independence. The investigation reinforced fears regarding the Fed's autonomy, creating additional geopolitical and policy risks that markets are navigating alongside other important themes like AI-driven tech, monetary policy, and political disruptions in Iran and Venezuela.
