Last week equity markets recouped a good portion of the post-job report losses as we headed into this week’s inflation data, the impending China trade deadline and the meeting between Presidents Trump and Putin in Alaska. Equity markets extended to the upside with some dramatic rotational flows beneath the surface. While the S&P 500 and Dow Jones Industrial Average both hit new all-time highs this week it was the small and mid-cap indices that outperformed ending up ~3%. This could just be a catchup trade as these indices have underperformed the S&P 500 by >5% YTD, but these companies are also more reliant upon financing, which suggests that investors have gotten more comfortable with the prospect of the Federal Reserve embarking on an easing cycle. However, that is occurring in the face of this inflation data which largely came in hotter than expected, especially the PPI. The market response at times has had the MAC Desk scratching our collective heads. There's some tension building which could potentially be resolved with Fed Chair Powell’s address at Jackson Hole next Friday. Sector-wise, healthcare was the best performer this week. Gains were broad based, including the ICE Biotech index up 5%. Communication Services was also an outperformer with broad strength particularly in media and entertainment. Yield-oriented and defensive sectors were underperformers. Looking head, the readout from the Alaska meeting will set the tone on Monday. The big macro event is the the Jackson Hole symposium. Jobless claims and flash PMIs are the data highlights in a relatively light calendar. Earnings reports from some of the biggest retailers including Walmart will provide insight into consumer health and tariff/pricing trends.

Expand article