By Panos Mourdoukoutas
After a two-week rally that pushed the S&P 500 Index and the Nasdaq Composite Index to new highs, U.S. stocks mainly traded sideways last week.
They ended slightly lower because of profit-taking, rising Treasury bond yields, and renewed trade tensions ahead of the new earnings season, and inflation reports.
The S&P 500 Index closed at 6,259 on July 11, down 0.31 percent for the week. The Dow Jones Industrial Average declined 1.02 percent to finish at 44,371. The Nasdaq Composite Index fell 0.08 percent to 20,585, while the Russell 2000 lost 0.63 percent.
Wall Street began the new trading week with profit-taking, as traders and investors locked in some of the gains made in the previous two weeks.
Adding to the selling pressure was the rising bond yields, with the benchmark 10-year Treasury bond yield edging closer to the 4.40 percent mark amid concerns over the upcoming new auctions later in the week.
Most of the selling was concentrated in the tech sector, which had gained the previous week, as well as in interest-sensitive sectors such as homebuilders and home furnishings companies.
Wall Street bulls returned by midweek, taking advantage of the market pullback—a pattern that has defined the current bull run. But there’s one notable difference: the pullbacks have become shorter, indicating a degree of complacency among traders and investors about the bull market’s fate.
Aiding the positive sentiment was the inflation report from the Federal Reserve Bank of New York on July 8, which showed that U.S. consumer inflation expectations for the year ahead declined to 3 percent in June from 3.2 percent in May. It’s the lowest level in five months, and below market estimates of 3.2 percent.
Inflation expectations are a crucial indicator of future inflation and a significant driver of interest rates, which, along with earnings expectations, influence equity valuations based on conventional models, such as the Discounted Free Cash Flow model.
The Federal Reserve closely monitors inflation expectations to guide monetary policy in pursuit of its mandate of price stability. A lower reading on inflation expectations suggests that price pressures may ease, increasing the likelihood that the central bank will cut interest rates at its next policy meeting, scheduled for the end of July.
The prospect of lower interest rates gained momentum on July 9 following the release of the Federal Reserve’s minutes from its previous Federal Open Market Committee meeting, which showed limited support for an interest rate cut at the end of this month.
Bond traders and investors cheered this prospect, driving bond prices higher and yields lower, with the 10-year Treasury yield retreating to 4.30 percent.
Lower bond yields, in turn, triggered the “risk trade,” characterized by increased buying of highly speculative assets such as tech stocks, with Nvidia repeatedly hitting new highs and Bitcoin reaching all-time highs.
However, major equity averages gave up most of their gains on July 11 due to renewed trade tensions and profit-taking, ahead of the earnings season beginning next week with reports from large U.S. banks and a flurry of new inflation data.
Michael Landsberg, chief investment officer at Florida-based Landsberg Bennett Private Wealth Management, sees stocks as vulnerable to negative trade headlines. However, he views the resulting volatility as an opportunity for investors who remain overly exposed to cash.
Meanwhile, Landsberg expects second-quarter earnings to be solid, but slightly weaker than those in the first quarter.
“Much of the second quarter was marked with tariff and trade issues, and that may have caused some dislocations in earnings for certain industries as their customers may have been in a holding pattern,” he told The Epoch Times.
“We think banks will have decent earnings, setting a healthy initial tone for the rest of earnings season, but we would expect banks with more exposure to the U.S. and trading operations to fare better,” Landsberg said.
“Market volatility was highly elevated in the second quarter, and that should help trading revenue,” he added.
On the inflation front, he expects next week’s Consumer Price Index (CPI) report to show a 2.5 percent reading for June, reflecting a slight acceleration from May, partially driven by price increases resulting from tariffs.
For the second half of this year, Landsberg expects markets to move higher due to the combination of better earnings and increased visibility into trade and regulatory policies.
“It wouldn’t surprise us to see the second half of the year clock positive market performance, just like the first half, and leading to a respectable high single-digit full-year 2025 market gain,” he said.
