AI-Led Rally Stalls as Rotation Favors Value and Defensives

For just the second time in the last 13 weeks, both the S&P 500 and the NASDAQ recorded weekly losses. AI stocks, which had driven the market for much of the year, experienced a notable drop, despite favorable earnings reports from some major microchip companies. Investors moved away from tech to more value-driven sectors, such as Health Care, Real Estate and Utilities. Consumer staples shares gained ground, helping to push small caps higher. The Dow held firm for much of the week. Crude oil prices fell to pre-Iran war levels as shipping traffic accelerated through the Strait of Hormuz.

GDP Growth Improves as Investment and Trade Offset Consumer Weakness

The economy expanded at an annualized rate of 2.1% in the first quarter, according to the third and final estimate from the Bureau of Economic Analysis. Gross domestic product increased at an annualized rate of 0.5% in the fourth quarter. Compared to the fourth quarter, the first quarter saw a decrease in personal consumption expenditures from 1.9% to 0.5%; investment rose from 2.3% to 7.9%; exports increased from -3.2% to 10.9%; imports increased from -1.0% to 11.8%; and government spending increased from -5.6% to 4.4%.

Eye on the Week Ahead

The markets are closed this Friday in celebration of the Fourth of July holiday. However, the labor report for June is available on Thursday. The month of May saw employment increase by 172,000.