U.S. stock indexes climbed in a broad-based rally as optimism grows. U.S. CPI (consumer price index) came in at 8.5% for July, down from the 9.1% seen in the prior month. This is mainly due to slumping energy prices. Lighter-than-expected inflation data is stoking bets on less aggressive Federal Reserve rate hikes. Furthermore, consumer sentiment has improved as highlighted by the University of Michigan consumer sentiment index: 55.1 in August, above expectations, up from July’s reading of 51.5.
The S&P 500 jumped 3.26% (down 10.20% year-to-date), and the Dow Jones Industrial Average added 2.92% (-7.09% for the year), or 958 points. The tech-heavy Nasdaq composite gained 3.08% (-16.60% YTD), thereby exiting the worst bear market since 2008.
International stocks performed in unison with low trading volumes. The MSCI World rose 3.00% (-12.29% YTD). In Europe, The MSCI EMU registered smaller gains (+1.44% over the week, -13.02% YTD), while the FTSE 100 added 0.82% (+1.58% YTD). In Asia, Japan’s Nikkei was up 1.32% (-0.85% YTD). Unlike last week, the Shanghai Composite followed suit (up 1.55% week-over-week, -9.97% YTD) though Beijing said Monday it would continue military drills around Taiwan - despite initially being scheduled to end on Sunday 7th August.
All 11 S&P sectors in the greenFor the second time in three weeks, all the economic sectors finished the week in positive territory. Energy stocks led the pack. They turned positive (+7.14% for the week) as natural gas soared over 8.7% and WTI prices rebounded from $89.01 to $92.09 (+3.46%) despite data showing U.S. weekly inventories jumped by 5.5 million barrels last week. The energy sector is by far the best performer this year (+41.39%) and remains attractive for investors as evidenced by the recent launch of new funds such as the Strive U.S. Energy ETF (Strive Asset Management) which started trading on Tuesday 9th August, under the stock code DRLL on the New York Stock Exchange (NYSE).
Financials (+5.45%) were also in ascendency while the Treasury yield curve remained inverted. Materials were not far behind (+5.14%). Communication services fared well (+4.48%), pushed higher by Meta Platforms (+8.01%) and Netflix (+9.93%).
Information technology (+2.44%) underperformed the broader market even though the largest tech ETFs received big inflows on signs of cooling inflation. Apple stocks also rose 4.08% and Micron Technology stocks rebounded Friday (+4.13% week-over-week) after the chipmaker announced a profit warning earlier in the week.
Lastly, defensive sectors did not show any weakness even if health care (+1.64%) and consumer staples (+1.20%) were the poorest performers. Real estate gained 4.10% while utilities added 3.06%.
Treasury yields tread waterThe U.S. 10-year Treasury yield remained virtually unchanged at 2.83% while the 2-year Treasury note slipped from 3.25% to 3.23% (i.e. +40 basis points higher than the 10-year yield). In Germany, the 10-year Bund yield finished up 3 basis points from 0.96% to 0.99%. High energy and food costs, driven both by the war in Ukraine and supply bottlenecks, continue to maintain inflation at high levels (7.5% in July vs 7.6% in June).
Against this backdrop, investment grade corporate bonds edged down 0.25% in Europe and gained 0.62% in the U.S. Risk appetite gave a boost to high-yield bonds. This asset class was up 0.81% in Europe, extending its winning streak to six weeks. It gained 0.71% in the U.S. In the bond space, the best performance came from emerging bonds (+2.48% over the week, +7.21% in the last four weeks).
Elsewhere, the yellow metal continued to show positive momentum. The spot price rose +1.51% at $1,802.40/Oz.
Cryptocurrencies bounced back with BTC USD (Bitcoin) above the $24k threshold (up 5.8%) while ETH USD (Ethereum) jumped 16%. It’s worth noting that BlackRock has just launched a spot bitcoin private trust offering institutional clients in the U.S. direct exposure to the world's largest cryptocurrency.