Stocks Mixed with Renewed Middle East Tensions; Bonds Fall

Good morning,

The Dow (-0.5%), NASDAQ (+1.7%), S&P 500 (+1.3%), and EAFE (-1.4%) exhibited mixed results last week.  Meanwhile, taxable bonds fell 0.4% and tax-free municipal bonds dropped 0.3%.  The 10-year Treasury yield rose 0.07% to finish the week at 4.56%.

Reversion to the mean seemed to be the case last week, as technology stocks rebounded from their recent woes, while the healthcare and energy stocks that have rallied lately showed some weakness.  Given the resurgence of the conflict between the US and Iran, the cost of oil and its associated impacts on inflation are becoming a concern to investors and economists again.  Inflation worries also put a damper on the bond market, as demonstrated by the rise in the 10-year Treasury yield.

Economic data reports were sparse last week, with only the Institute of Supply Management (ISM) Services sector showing a slight slowdown, but well within expansion territory.  More importantly, the prices paid index fell, as oil prices eased last month.  This week will offer two key inflation reports – the Consumer Price Index (CPI) and the Producer Price Index (PPI).  Both are expected to come in lower due to the easing oil prices in June, but those reports are backward-looking, whereas the stock market is a forward-looking index.  Thus, while oil prices were down in June, the markets will likely respond to the recent increase in tension with Iran, which could lead to inflation fears and a pullback in the markets.  Plus, the stock markets tend to be more volatile during the summer months due to vacations and reduced trading volume.

Have a great day and terrific week!

^{Source:  Yahoo Finance}

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^{The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.}