Markets slid last week as concerns over elevated valuations tied to the artificial intelligence (AI) trade and a rise in tensions in the Middle East offset strong bank earnings. Oil prices rose sharply to start the week, with the United States reimposing a blockage on Iranian ports.
In economic news, the headline Consumer Price Index (CPI) came in softer than expected, largely due to a steep decline and gasoline prices, while the Producer Price Index (PPI) rose above market expectations.
Small business optimism rose in June, topping forecasts; and retail sales rose modestly as lower gas station revenues masked gains at several retailers.
The S&P 500 slumped 1.55% to just below its 50-day line, finishing the week down 1.6%. The Nasdaq Composite tumbled 2.9%—sliding below its 50-day line—while the Nasdaq-100 fell 4.1%, nearly undercutting its early June lows. The Dow Jones Industrial Average dropped 0.9% for the week, and the small-cap Russell 2000 fell 0.5%.
In the technology sector, the VanEck Semiconductor ETF (SMH) slumped 8.9% for the week (despite paring losses last Friday to finish down 2.2%), pressured by news that Chinese startup Moonshot AI unveiled a new model challenging top U.S. offerings.
Meanwhile, the 10-year Treasury yield fell three basis points to 4.54%.
Energy markets saw significant volatility as U.S. crude oil futures spiked 15.5% to $82.49 a barrel. West Texas Intermediate crude rose 4.5% on Friday to settle at $82.49, while international benchmark Brent crude advanced 4.6% to close at $88.10, fueled by heavy U.S.-Iran attacks and restricted tanker traffic through the Strait of Hormuz.
Amid the broader market rotation into financial and medical stocks, The Travelers Companies (TRV) provided a bright spot. Shares popped 9.2% last Friday to a record high following an earnings report that showcased a 54% surge in earnings per share to $10.04, crushing the Wall Street consensus of $5.41. While net income climbed to approximately $2.2 billion from $1.5 billion in the year-ago quarter, sales remained flat at $11.5 billion.
Investors this week, are turning their attention to a busy slate of corporate earnings and key events:
Interactive Brokers (IBKR): Reporting Tuesday night.
GE Vernova (GEV): Reporting early Wednesday.
AMD: Hosting an AI event on Wednesday. Shares, which dived 11.1% last week, are currently near the 50-day line; a strong move above the 50-day and 21-day lines could offer a potential pullback entry.
Alphabet (GOOGL), Tesla (TSLA), and Intel (INTC): All due to report late Thursday.
S&P Global’s preliminary July Purchasing Managers Indexes (PMIs) will likely be a focus.
Please click here for the Looking Ahead report from the Wells Fargo Investment Institute. Below are excerpts from that research.
Week in review: July 13-17
- Headline CPI came in softer than expected in June with prices declining 0.4% month-over-month (M/M), and core CPI remaining unchanged M/M.
- Headline CPI dropped primarily due to a 9.7% decline and gasoline prices and a 1.0% decline in electricity prices in June.
- Core CPI softened across several categories with declines in hotels, wireless services, and medical care, while shelter, airfares, and recreation showed slower growth.
- June retail sales by 0.2% M/M, staying in line with the expectations and showing continued resilience in consumer spending. Excluding gasoline stations, sales figures increased. 0.7%.
- Lower fuel sales helped lift University of Michigan consumer sentiment for July to 54.4, above economist expectations.
- The June PPI fell 0.3% M/M, coming in below economists expectations of no change.
- June industrial production rose slightly 0.1% M/M, coming in just below consensus expectations of 0.2% M/M.
- The National Federation of Independent Business (NFIB) measure of small business optimism for June climbed to 97.4. Falling energy prices lifted small business confidence, leading to brighter expectations for future sales, hiring plans, and capital spending.
- Persistently high mortgage rates coupled with record high median home prices continue to weigh on buyers, as pending home sales fell sharply by 5.4% in June, well below expectations of a more modest 0.5% decline.
- June housing starts jumped 19.0% M/M to an annualized 1.427 million units. This increase makes up for May’s 15.2% decline and was primarily due to multi-family projects broadly increasing across the nation.
- Elevated borrowing costs, increased land costs, and increased material costs continue to weigh on home builders, with the National Association of Home Builders (NAHB) Housing Market Index for July falling a point to 34.
- Building permits unexpectedly fell 3.0% M/M in June.
Looking ahead to this week: July 20-24
U.S.
- S&P Global’s July manufacturing and services PMIs will be released on Friday.
- Also on tap: June’s index of leading economic indicators, Chicago Federal Reserve (Fed) National Activity Index, new home sales and finalized building permits, along with measures of July economic activity from the Philadelphia and Kansas City regional Fed banks.
- Investors will also be watching for any developments in the Iran war. Meanwhile, markets will be awaiting any updates on U.S. tariffs as the Section 122 10% universal levy is set to expire Friday.
Asia
- In China, the focus of the week will be July’s one- and five-year loan prime rates.
- From Japan, look for July‘s preliminary PMIs and June’s national CPI, trade balance, and department store sales.
- Elsewhere in the region, South Korea’s June PPI and advanced reading of second-quarter gross domestic product hit the tape, along with Australia’s preliminary July PMIs and June leading index and labor market data.
Europe
- The highlight will be Thursday’s European Central Bank policy meeting, along with preliminary July PMIs in the region and the Eurozone’s July consumer confidence and ZEW expectations for economic growth.
- Markets will also be monitoring early remarks by the incoming U.K. Prime Minister Burnham beginning Monday.
- Also from the U.K., watch for July’s consumer confidence and house prices; June’s CPI, Retail Price Index, PPI, retail sales, and jobless claims; and May’s unemployment rate, weekly earnings, and employment change.
- Other releases include Germany’s consumer confidence, PPI, and July ZEW index of current conditions, along with France’s July manufacturing confidence.
