Weekly Investment Perspective

U.S. stocks fell a third consecutive week as investors struggled to shake off diminished views of Fed rate cut expectations and geopolitical volatility in the Middle East. The S&P 500 closed out a rough week with its worst weekly performance in over a year. The decline saw the index slip below the key 5,000-point level for the first time since late February. This week's retreat was driven by stronger-than-anticipated economic data, which, coupled with hawkish Fed minutes, led market participants to dial back their interest rate cut expectations. Disappointing quarterly reports from the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing, pulled down chip stocks, dragging down the technology sector. For the week, the S&P 500 slid -3.1%, the Nasdaq Composite declined by -5.5%, and the blue-chip Dow was relatively flat, with a small gain of +0.01%.

The US market witnessed caution as investors navigated through various factors impacting sentiment. Concerns about inflation persisted, fueled by rising energy prices and supply chain disruptions, leading to increased uncertainty about the Federal Reserve's future monetary policy decisions.

The technology sector, which had been a significant driver of market gains in recent years, faced headwinds as investors rotated towards value stocks in sectors such as energy and financials. The “Magnificent 7” lost $930B in collective market cap last week as part of the tech pullback, but are bouncing back a bit so far this week and will have more color on them with earnings coming up. This rotation was partly driven by expectations of rising interest rates, as the Fed signaled a more hawkish stance towards monetary tightening to combat inflationary pressures.

Geopolitical tensions added another layer of uncertainty to the market environment, with ongoing conflicts and diplomatic tensions influencing investor sentiment. Rising geopolitical risks, particularly in regions like Eastern Europe and the Middle East, contributed to market volatility as investors assessed the potential impact on global economic stability and energy markets. Amid these challenges, economic data releases provided further insights into the health of the US economy, with indicators such as jobless claims, retail sales, and housing data being closely monitored for signs of strength or weakness.

Looking ahead, investors remain cautiously optimistic, balancing concerns about inflation and interest rates with hopes for a continued economic recovery. The earnings season will continue to be a focal point, with some of biggest names set to report include "Magnificent 7" members Microsoft, Alphabet, Meta Platforms and Tesla. Additionally, developments on the inflation front, progress in geopolitical situations, and any shifts in monetary policy guidance from the Federal Reserve will likely influence market dynamics in the coming weeks.