U.S. Stocks rebound strongly

U.S. stock indexes climbed in a broad-based rally, snapping their 7-week losing streak, the longest since the dotcom crash in 2001. After a wave of selling pressure amid warnings from Walmart Inc and Target Corporation that surging inflation has taken a big bite out of their profits, retailers bounced back on Thursday in the wake of Dollar Tree, Dollar General and Macy’s earnings reports. The three retailers reported profits that defied Wall Street’s expectations, easing worries about the strength of U.S. consumers. Furthermore, the Federal Reserve's May meeting minutes showed the central bank was keen to move "expeditiously" on rate hikes to tame inflation. Yet the Fed could pause its monetary policy tightening later this year if financial conditions worsened.

For the week, the S&P 500 finished up +6.58% at 4,158.24, bringing its year-to-date performance to -12.76%. The Dow Jones jumped +6.24% (+1,951 points at 33,212.96, -8.60% YTD). The best performance among the leading U.S. indices came from the Nasdaq Composite (+6.84% week-over-week, -22.46% YTD), as traders were buying the dip in tech. 

International stocks performed in unison despite low trading volumes. The MSCI World jumped +5.52% (-13.28% YTD). In Europe, The MSCI EMU gained +3.64% (-11.63% YTD), while the FTSE 100 added +2.65% (+2.72% YTD). In Asia, Japan’s Nikkei edged up +0.16% (-6.98% YTD). On the flip side, the Shanghai Composite fell -0.52% (-14% YTD) as endless lockdowns are hammering industrial output, exacerbating downside risks to China’s Q2 GDP. China’s Premier Li Keqiang delivered a downbeat outlook on Thursday about the new fight against Covid-19.

All 11 S&P sectors in positive territory   

For the first time this year, all the economic sectors finished the week in positive territory. Consumer discretionary led the pack (+9.24%) in the wake of Tesla (+14.42%), Dollar General (+21.74%) and Dollar Tree (+29.00%). Investors also piled into tech stocks (+8.07%) with Apple up 8.46%, and energy stocks (+8.09%) as Government data showed sharper-than-expected declines in U.S. crude and gasoline stockpiles. Supply and demand fundamentals still support higher prices. Health care was the poorest performer over the week even though this defensive sector managed to gain +3.21%. 

Global bond rally

The U.S. 10-year Treasury yield slid about 5 basis points from +2.79% to +2.74%. In Germany, the 10-year Bund yield rose from +0.94% to +0.96%. The French OAT yield followed suit (+2 basis points at +1.49%).

Expectations for a Fed pause on rate hikes later this year gave a boost to the riskiest bond classes. Investment grade corporate bond prices were up +1.46% in the U.S. (-11.95% year-to-date) but down in Europe (-0.17%). High-yield bonds gained +0.40% in Europe and jumped +3.58% in the U.S., their best weekly performance since April 2020. After suffering one of its worst drawdowns in recent history, emerging debt rallied (+1.93% in local currencies, -12.96% year-to-date) as the greenback declined to a one-month low against major peers (dollar index below 102, down -1.5%). 

Elsewhere, gold continued to show positive momentum. The spot price was up +0.39% at $1,853.72/Oz. By contrast, the world's largest cryptocurrency by market capitalization (BTC USD) dropped by -3.8%, just above the crucial $29,000 support level, as investors kept moving out of the crypto space after the recent market crash. 

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