Disappointing economic reports once again increased expectations for Fed rate cuts, which seems to be the market’s primary concern at this point in time. A Goldilocks ISM Manufacturing print, a headline miss in the June ISM Services Index, a softer than anticipated June jobs report, and dovish commentary from Fed Chair Powell all boosted sentiment in the holiday-shortened week with low volumes. The rally was also supported by easing European political worries as the political extremist failed to gain the traction people were expecting in the French elections.

Stocks surged to new highs early last week, buoyed by enthusiasm around AI and leading tech stocks but momentum waned later in the week as investors digested some softer than expected economic data heading into Friday’s options expiration. Despite the stall, the S&P 500 managed a weekly gain of 0.61%, bringing its year-to-date increase to 14.57%.

Last week’s economic data indicated a resurgence of disinflation as both CPI and PPI beat expectations. The highlight was Wednesday’s CPI report, which posted the best inflation numbers in months. Thursday’s PPI report reinforced this trend with a headline decline and flat core. Together, CPI and PPI data confirmed solid downward pressure on inflation in May.

Last week’s economic data felt like a roller coaster ride. Ultimately, the key events favored economic growth and that’s a good thing going forward, even though it likely pushes back on rate cuts coming sooner than later. Equity investors seemingly took the data in stride despite the bond market’s reaction on Friday.

The positive news flow began when the May flash PMIs came in notably strong with both manufacturing and services showing significant gains. Jobless claims also stabalized back under the 220k mark, New Orders for Non-Defense Capital Goods ex-Aircraft (NDCGXA) showed business spending plateauing but not declining while the revised Q1 GDP showed solid growth at 1.3%. From an economic activity perspective, this was all “good news”. Last week, the Core PCE Price Index met expectations at a 2.8% year-over-year increase, easing investor concerns about inflation and not altering expectations for Fed rate cuts.