What Happened Last Week
- Yields Plunged: A weak jobs report helped push the 30-year yield to its biggest weekly fall since April.
- Tech Stocks Rose: Positive news on Google’s antitrust case and a Broadcom–OpenAI chip partnership propelled equity markets higher.
- Small Cap Rally: Optimism about deeper Fed rate cuts to start at their September meeting drove a sharp rally in smaller-cap domestic stocks.
What We’re Watching This Week
- Inflation: Thursday’s Consumer Price Index (CPI) report is the most important data release of the week; Producer Price Index (PPI) and the UMich consumer survey will also add color to the outlook.
- Tech Events: Earnings from Oracle and Adobe, as well as Apple’s iPhone launch event, will be closely scrutinized by tech traders.
- Politics: As the Fed conflict continues, investors are also watching France’s confidence vote and the ruling Liberal Democratic Party’s path in Japan after its leader’s weekend resignation.
Investment Management Team’s Views
Fears over rising long-term bond yields were initially at the forefront last week, but in the end the economic data won out and yields fell across the curve. The 30-year U.S. bond yield saw its largest weekly decline since the Liberation Day growth shock due to last week’s underwhelming reports on the labor market and overly skewed positioning in favor of higher long-term bond yields. Friday’s weak jobs report saw the highest unemployment rate since 2021. Federal Reserve expectations solidified a cut at their September meeting and moved toward three total cuts for the rest of this year. This week’s preliminary employment revisions, released on Tuesday morning, will be more closely watched than normal given the market’s concern over the extent of the recent weakness in the labor market.
Friday’s negative stock reaction to the weakness in the labor market and lower interest rates is a sign that not all rate cuts are created equal. The Fed remains in a tough spot. While pressure ratchets higher on their independence, their dual mandate of growth and inflation remain in conflict with the potential overhang of tariff-related price increases still clouding the outlook. This week’s inflation report is very important in that context. An as-expected print should be received positively by the market as it would allow for deeper Fed rate cuts if growth continues to slow, while bond yields could shoot higher if inflation surprises to the upside.
Despite the turbulence in yields, stocks were supported by idiosyncratic reports related to U.S. mega-cap tech stocks last week. Google received clarity on their longstanding antitrust case, propelling communication services to a gain of over 5% on the week. Broadcom’s earnings release was as expected, but the stock rallied strongly on Friday after they announced a custom chip partnership with OpenAI. In the week ahead, Apple’s iPhone launch event, earnings from Oracle and Adobe, and an onslaught of conferences will keep up a steady stream of newsflow from the fundamental side.