Stocks rallied in early trading this week as markets continue to grapple with central bank policy and the ultimate repercussions for global economic growth. The S&P 500 was higher by about 3% mid-week, as growth stocks outperformed value. In bonds, interest rates moved sharply lower this week, with the yield on the 10-year Treasury note trading around 3.14% mid-week. Meanwhile, oil prices fell this week on the expectation that slowing economic activity could weigh on demand. West Texas Intermediate crude traded around $103 per barrel on Wednesday, roughly 20% lower than where we started the month of June.
Focus this week will be on Federal Reserve Chair Jerome Powell’s two-day semi-annual testimony to the Senate Banking Committee and the House Financial Services Committee. Over its past three meetings, the central bank has raised interest rates a cumulative 1.50% to help curb record inflation. Despite concerns tighter monetary policy may drive the economy into recession, Powell has stressed he believes the economy is well-positioned to handle higher interest rates.
On the data front, existing home sales fell by 3.4% in May, in line with expectations. This marks the fourth consecutive monthly decline in sales volume, as significantly higher mortgage rates have started to catch up with housing. Separately, MBA mortgage applications climbed by 4.2% last week, reflecting renewed demand for adjustable-rate mortgages to combat higher fixed rates. Looking ahead to the remainder of the week, investors will look to the initial jobless claims data and manufacturing PMI report on Thursday for insights into current state of the labor market and economy.
Source: GSAM, CNBC, JPMorgan