U.S. stocks bounce back after worst half in more than 50 years

After recording their worst first-half performance since 1970, U.S. stocks bounced back powered by a rebound in tech, consumer discretionary and communication services. The Dow Jones Industrial Average gained 0.77%, or 241 points, the Nasdaq jumped 4.56%, and the S&P 500 rose 1.94%. The U.S. Labor Department reported that employers added 372,000 jobs last month. The unemployment rate held steady at 3.6%, paving the way for a series of aggressive raises in interest rates as the Fed seeks to cool the economy. This is why recession concerns continue to dominate the market despite the level of non-farm payrolls which does not reflect a recessionary environment so far. In any case, the next week will be crucial for capital markets with the upcoming earnings season and inflation data.

Elsewhere, European stock markets were broadly higher with the MSCI EMU up 1.84%. The FTSE edged up 0.38%. In Asia, the Nikkei 225 was up 2.44%, erasing last week’s losses. On the flip side, the Shanghai Composite fell -0.93%, snapping its five-week winning streak.

Sector rotation accelerates      

Last week’s winners lost momentum. Defensive stocks like utilities (down -2.87%) and consumer staples (down -0.47%) wiped out their recent gains. In the same vein, the energy sector was one of the biggest drags (-2.39%) on the broader market. WTI Crude Oil prices (Nymex) slipped more than 3.3% as recession fears darken the outlook for oil demand. Furthermore, U.S. weekly crude inventories unexpectedly rose by 8.2 million barrels in the week ended July 1.

By contrast, three S&P sectors exhibited stellar performance. Communication Services led the pack (+4.92% for the week), helped by Meta Platforms (+6.78%) and Google-Alphabet (+10.16%). Consumer discretionary (+4.55%) was not far behind as Tesla stocks shot up in the last two trading sessions (+10.34%). Musk said he was terminating his $44 billion deal to buy Twitter. After its recent plunge, the IT sector bounced back too (+4.32%) though Treasury yields were pushing higher. Digital infrastructure, next-generation internet and cloud computing were among the best themes this week. The ARK Innovation ETF thus gained 13.68% over the week bringing its year-to-date performance to -50.46%.

Yields on the rise as the Federal Reserve remains hawkish     

The US 10-year Treasury yield finished up +20 basis points at +3.08%, just below the 2-year yield at +3.10%. The yield curve, therefore, remains inverted, raising worries over recession. 

In Germany, the 10-year Bund yield rose from +1.23% to +1.35% while the country posted its first monthly trade deficit in over 30 years in May, due to a 28% annual rise in its import bill. The French OAT yield followed suit (+8 basis points at +1.88%).

Against this backdrop, investment-grade corporate bonds closed mixed (down 0.78% in the U.S and up 0.75% in Europe). High yield bonds fared well (up 0.47% in Europe, and up 1.61% in the U.S.). In contrast, emerging debt in local currencies took a nosedive (-1.66%) after the dollar index rose to its strongest since November 2002.

Crypto rebound     

As reflected by the FT Wilshire Top 5 Digital Assets Index, the crypto market managed to form and complete a bullish week after a long period of consecutive declines, with Bitcoin up 9.8% above $21,100, and Ethereum up 9.7% above $1,150.