U.S. equities were mixed this past week as tech stocks took a breather from their AI-fueled surge and investors assessed a string of economic data, including softer than expected retail sales and housing reports offset by strength in several manufacturing readings. The S&P 500 index notched a new historic high above 5,500 during Thursday's session before retreating from record levels on Friday amid the tech pullback. The S&P 500 ended the week up 0.6% while the Dow Jones gained 1.5% and the tech-heavy Nasdaq Composite was flat on the week.

Last week’s release of the May retail sales report fell short of expectations across the board, casting some doubts on the narrative of sustained consumer resilience. Retail sales rose just 0.1% in May over the prior month compared to expectations for a 0.3% monthly gain. Auto sales supported the bulk of the growth as retail sales ex-autos fell 0.1%. However, the retail sales miss may not be as bad as appears as the data is reported in nominal dollar terms, so it is impacted by pockets of falling goods prices. This upcoming week will shed some more light on the health of the consumer with an update on consumer confidence from the Conference Board and earnings reports from several retailers including Nike and H&M.

Housing markets also showed signs of further cooling in May amid continued tight supply and high mortgage rates. According to the National Association of Realtors, existing home sales fell for the third straight month in May, down 0.7% from April and down 2.8% compared to a year ago. Meanwhile, new housing starts dropped 5.5% in May and were down 10% year-over-year. Mortgage rates have edged down from last year’s peaks as the US average 30-year mortgage has dipped back below 7% in early June compared to about 7.8% last October. However, sticky inflation readings and a growing government debt burden have been supporting expectations that interest rates could be higher for longer.

The federal budget deficit is expected to swell to around $1.9T this year, according to the Congressional Budget Office, which was higher than its previous estimate of $1.5T. This takes into account increased spending for student loans and Medicaid as well as the recently passed $95B foreign aid package. National debt is even poised to top $56T over the next 10 years, or 122% of GDP, surpassing the 106% seen in 1946 after World War II. Meanwhile, the eurozone is facing debt issues of its own, with the ECB warning eight of its members – Including Belgium, France and Italy – over their excessive budget deficits.

Prospects for fiscal policy in the years ahead will be an area of focus for investors with the upcoming election cycle. The big event this week on the election front will be the first debate between President Biden and Donald Trump, on Thursday on CNN. Both will feel they have some momentum: Biden has edged ahead in opinion polls, while Trump has closed a fund-raising gap.

This Friday, the Personal Consumption Expenditures price index for April is set to be published. It could influence whether the central bank expects to cut interest rates once or twice this year. That report will contain a reading on the core personal consumption expenditures (PCE) price index, which is widely seen as the Federal Reserve's preferred inflation gauge. Economists expect core PCE to rise 0.1% M/M and 2.6% Y/Y, marking a deceleration on both counts from April.