Stocks ended the holiday shortened week higher, with evidence of rotation around quarter-end below the surface. A weaker-than-expected June employment report on Thursday quieted near-term Federal Reserve rate-hike anxieties. For the week, the S&P 500 gained 1.8% and the NASDAQ added 2.1%, while the Russell 2000 slipped 0.5% after touching a record high on Wednesday. The week also closed the books on a strong first half, with healthy returns of 9.6% for the S&P 500, 12.8% for the NASDAQ, and a 22% surge for the Russell 2000 index, its best first half since 1991.
Beneath the headline gains, the week’s defining feature was further volatility in AI-related stocks, echoing the prior week’s selloff. Investors took profits in chipmakers over the final two sessions, with the Philadelphia Semiconductor Index (SOX) falling 4% for the week. Through the first half of the year, the SOX was up more than 80%. Offsetting the semiconductor weakness was strength across the Mag 7, with the group rising 5% for the week.
The June employment report moderated Fed expectations, with the market-implied probability of a September rate hike falling to roughly 50%, from around 64% a day earlier. Speaking at the ECB’s annual forum in Portugal, Fed Chair Kevin Warsh said inflation expectations had eased over the past month, suggesting no urgency to raise rates, while reiterating the central bank’s commitment to restoring price stability. Separately, the Supreme Court rejected the administration’s effort to remove Fed Governor Lisa Cook, alleviating concerns about Fed independence.
Middle East tensions continued to ease, with rising oil shipments through the Strait of Hormuz and signs of progress in indirect US-Iran talks pushing oil prices lower. Brent crude posted its biggest monthly decline since March 2020, returning closer to pre-war levels.
