Michael Reinking:

Hello, I'm Michael Reinking, Senior Market Strategist at the New York Stock Exchange. And this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. The first week of summer has been a scorching hot one in New York City, but the summer lull hasn't hit markets yet. So, let's dive into this week's Market Storylines.

Now, last week, major US indices ended the week around unchanged, as investors digested the Fed's rate decision and the world waited to see if the US would get more directly involved in the Middle East. Now, Friday was triple-witch expiration, leading to a closing auction that exceeded 2 billion shares on the NYSE. In last week's episode, we suggested that the hedging activity associated with this event was suppressing volatility. And as those positions rolled off, we could see an expansion of a tight range we've been trading in recently.

Now, as we record on Thursday afternoon, global markets have moved higher this week with the S&P 500 up over 2% trading to the highest level since February, quickly approaching its all-time high again. So, how did we get there? Probably not the way you might've envisioned. Now, over the weekend, president Trump ordered airstrikes on Iran's nuclear sites, just a day after suggesting it could be a couple of weeks before he made a final decision. Now, equity futures reopened modestly lower on Sunday night, while oil extended the recent gains with ICE Brent briefly trading over $80. However, those moves unwound by the time US Markets opened on Monday. Now, it was a pretty choppy session until midday when the Iran response came with a missile attack on a US military base in Qatar. Now, the missiles were intercepted with no casualties, and the response was modest versus some of the-case scenarios, and was deemed to be a sign that Iran wanted to de-escalate the situation.

Now, equities rallied into the close ending up around 1%, but the big move came in oil markets with ICE Brent falling back to around $70. Now, on Tuesday evening president Trump said a ceasefire had been reached, and said the US and Iran will speak next week.

Now, the other thing helping risk sentiment this week is economic data that continues to point to resilient US economy, despite the uncertainty. S&P Global Flash PMIs released on Monday came in better than feared with both manufacturing and services holding above 50, pointing to modest growth. Now, this morning durable goods orders blew away expectations driven by the recent Boeing orders, but ex-transports also came in ahead of expectations. Non-defense goods orders ex-aircraft, often referred to as capital goods orders, and viewed as a proxy for business spending, was up a strong 1.7%. And this morning's initial claims moved down around 10,000 from recent levels, though continuing claims continue to move higher, hitting 1.97, the highest level since 2021. Now, this continues to suggest that layoffs are not increasing significantly, but it is taking longer to find a job as hiring moderates.

Now, this week, treasury yields have been moving lower as the inflation concerns related to the recent move hiring in oil prices unwinds. Now, in addition, the Fed proposed lowering the enhanced supplementary leverage ratio, from 5% to between 3.5 to 4.5%, based on the bank's risk profile. Now, this proposal, which has been a goal of the administration to help increase demand for treasuries, is now open for public comment, which typically lasts 30 to 60 days. Now, this has especially helped the GSIB, or Globally Systematically Important Banks, trade well as it could free up a significant amount of capital from their balance sheets.

Now, some dovish Fed commentaries also helped the treasury rally. At the end of last week, Fed Governor Waller suggested that he would support a cut in July, something Michelle Bowman reiterated this week as well. Now, this once again highlights the building factions within the committee that was apparent in the dots last week.

Now, it's notable that both Waller and Bowman are voting members, with the latter reportedly being considered to replace Chair Powell. Now, speaking of the chair, Mr. Powell testified before Congress this week, while remaining under fire from the administration, and the idea of a shadow Fed chair being announced soon making the rounds again. Now, he continued to hold his ground about the importance of patience in the current environment given the uncertainty, but once again noted that it had not been for tariffs, the Federal Reserve would likely be cutting in the current environment.

Now, as we're recording, the S&P 500 is within points of hitting a new all time high with tech once again leading the charge, while energy and defensive sectors are underperforming this week. Now, one thing that caught my eye is, while the S&P 500 is near a new all time high, the outperformance versus small and mid-cap stocks is widening again. Now, the Russell 2000 is still struggling to clear its 200-day moving average around 2175, and is still over 10% below its post-election high.

Now, speaking of the Russell, the annual reconstitution takes place tomorrow, and is typically one of the heaviest volume days of the year. Now, looking forward to next week, it will be a holiday shortened week, kicking off with quarter end on Monday. Now, Central Bank Commentary will continue to be in focus with the ECB Central Conference, the equivalent of the Feds Jackson Hole event, taking place. The heads of the Fed ECB Bank of Japan and Bank of England will be on a panel on Tuesday.

Now, the Senate continues to work through the contours of the big beautiful bill with the hopes of having its version of the bill passed before the holiday. There is also some key economic data, including the ISM surveys, and the BLS employment report on Thursday morning, in a half day of trade before markets are closed for July 4th. Now, I'll leave you with that vision of beaches, barbecues and fireworks, and we'll be back with you after the holiday.

Thanks for spending some time with us today. If you like today's episode, please tell a friend or leave a comment wherever you listen to your podcasts. I'm Michael Reinking. Thanks for joining me, and hope you enjoy some time with friends and family.

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