After declining for three straight weeks, the S&P 500 Index posted its third weekly outflow. The decline was precipitated by a holiday Monday – Juneteenth. But stocks rebounded on Tuesday. Investors sought to add positions after the previous week’s 6% decline. That decline had been the largest since July 2022, when stocks reached their highest level in history. The Fed’s Chairman Powell’s testimony to the Senate Banking Committee increased recession fears. While Powell admitted that inflation would be difficult to control and that a soft landing would be hard to achieve, he did not suggest that the Fed will stop raising rates for the foreseeable future.
Stocks began the week with a modest gain, but turned south on Friday after the release of hotter-than-expected May CPI data. Trading volumes were light at the beginning of the week, and volatility, measured by the CBOE Volatility Index, were relatively low. At the end of the week, however, volatility spiked sharply. This is a sign that investors believe that the Fed is more likely to hike rates by 50 basis points this year.
The slowdown fears have been weighing on global equity funds, with the third consecutive week of net outflows. In the week to July 12, domestic equity funds experienced a $3.4 billion outflow, while nondomestic equity funds saw a $736 million net inflow. The largest net outflows were experienced by domestic equity funds, followed by small-cap, international & global, and debt fund categories.
Emerging market funds continued to suffer last week, as investors net-redeemed their investments. Meanwhile, the money-market funds and the money market index experienced net inflows of $7.2 billion and $930 million, respectively. Those in nondomestic equity funds were also negatively impacted by the slowdown fears, and suffered a net outflow of $2.18 billion. Finally, gold and energy funds saw marginal inflows of $31 million after six weeks of losses.
The broader municipal bond market sagged through much of the week as yields on longer-term debt issues jumped. However, reinvestment proceeds of June bond maturities and coupon payments anchored the short-maturity portion of the yield curve. However, the market did experience a decline in UK stocks, with the FTSE 100 Index dropping 2.86% on Thursday.
While oil prices helped energy stocks, a large part of the month-over-month gain in gasoline and oil price made up the rest of the month-to-month losses. Oil and gas stocks had the best week in this week, while the broader market lost. Despite a strong week in the energy sector, all eleven of the GICS sectors ended this week in the red, led by Information Technology.