The weekly wrap: BayFort Capital

Stocks closed flat last week as higher energy prices combined with the possibility of a UAW strike worried investors. ?The S&P 500 fell 0.16%, while the Dow Jones Industrial Average edged up 0.12%. Value stocks and large-caps outperformed growth and small-caps, especially as U.S. benchmark West Texas Intermediate oil prices surged beyond $90 per barrel, marking their highest point since November 2022. Technology and growth stocks underperformed following Apple's product introduction event on Tuesday. The products garnered mixed reviews, contributing to a subdued outlook for the technology sector throughout the week. Nevertheless, overall market sentiment received a boost from the largest initial public offering of 2023, as shares of a UK microchip designer commenced trading on the Nasdaq on Thursday, experiencing a significant first-day price surge.

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The yields on the US ten-year treasury nudged up by 3 basis points during the past week, and there was a marginal upward movement in the rest of the yield curve as well. Increasing crude prices have contributed to renewed inflationary concerns. The UAW strike, if prolonged, will add to inflation pressure. New vehicle prices may increase nearly 2% in the case of a two-week strike, according to the J.D. Power. As a result, the financial market is reevaluating the possibility of the Fed implementing another interest rate increase by the end of the year. Although the market views the probability of a rate hike at the Fed's September meeting (scheduled for Wednesday) as very low, it still holds a 50% likelihood of another increase occurring before the year ends. ECB increased its key rates by 25 basis points but also guided to a prolonged pause, resulting in a deposit facility rate of 4%. The Governing Council considers these levels to be adequate for guiding inflation back towards its targeted 2% inflation. Consequently, markets are currently estimating a 35% probability of another ECB rate hike occurring by the end of the year. The 10-year German yield rose by 5 basis points to reach 2.66% while the shorter-term yields experienced an increase of over 10 basis points, prompted by the somewhat unexpected ECB interest rate hike. The Bank of England is set to announce its interest rate decision this Thursday. Currently, the market is attributing a 70% probability of another rate hike. In the UK, the 10-year government yield dropped by 10 bps, while the 2-year yield fell below 5% for the first time this month. Overall, interest rate volatility continues to decline, a positive for the markets as it eliminates a major risk to equity valuations.

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