What Happened Last Week
- Historic IPO: SpaceX made history as the largest IPO ever when it began trading on Friday.
- Middle East Peace: News broke over the weekend of an agreement between the U.S. and Iran to cease hostilities.
- More Broadening: Amid war-related headlines and SpaceX-induced volatility in tech, market breadth quietly continued to improve.
What We’re Watching This Week
- Warsh Takes Over: Kevin Warsh’s first meeting as Chair of the Federal Reserve will be on Wednesday afternoon.
- Central Banks: We are also watching foreign central banks for any shifts in thinking about what the end of the Iran war could mean for inflation and rates.
- G-7 Meeting: A G-7 Summit in the Alps will bring world leaders together and may include finalizing the deal between the U.S. and Iran.
Investment Management Team’s Views
The historic SpaceX initial public offering, which began trading last Friday, dominated market price action all week. Investors jockeyed for position and made room in their portfolios for this highly valued, and highly speculative, company that wants to literally push the boundaries of what humanity is capable of. Growth stocks underperformed value, and the communications services sector was the worst-performing sector. SpaceX, which currently earns most of its revenue from communications satellites, may enter the index in that sector, likely sometime in 2027. The Mag 7 also came under selling pressure as investors reoriented their mega-cap exposure into a name with considerably more excitement. This group, now negative for the year, has largely been supplanted by the AI infrastructure trade, concentrated in semiconductors, memory, power generation, and other firms involved directly in the investment phase.
News beyond the SpaceX offering supported a broadening of market price action as investors repositioned their tech and mega-cap holdings. While headline inflation accelerated due to energy prices, a weaker reading on the important core measure eased some of the pressure on short-term interest rates. Optimism on Iran also built throughout the week, helping the market broaden out away from the mega-cap-dominated growth indices. Small caps outperformed large caps by their widest margin since before the war began, and international stocks outperformed. The weekend’s news of a deal between the U.S. and Iran will likely support that price action into the week ahead.
Beyond news from the Middle East, investors will focus on Kevin Warsh’s first meeting as Chair of the Federal Reserve. Markets expect rates to be on hold and a shift in the bias toward easing rates, but with new economic and interest rate projections and an unpredictable press conference, Wednesday afternoon will be especially lively. Twelve other central banks also meet next week. Our focus is on the Bank of Japan, which is widely expected to hike interest rates by 25 basis points. U.S. retail sales for May, the G7 Summit in Europe, the group stage of the World Cup, and a 20-year bond auction in the U.S. will keep investors busy during a holiday-shortened trading week.