U.S. stocks strung a second-straight session of gains to close out the final trading day of the first-half of the year with the recently pressured technology and healthcare sectors rebounding. Dow member Nike rallied on its stronger-than-expected earnings results and crude oil prices extended a run to multi-year highs to lift energy issues. Treasury yields ticked higher and the U.S. dollar fell amid rallies for the euro and British pound. In domestic economic developments, personal income met expectations, but spending missed and regional manufacturing activity unexpectedly accelerated. Gold traded to the upside.

The Dow Jones Industrial Average (DJIA) gained 55 points (0.2%) to 24,271, the S&P 500 Index added 2 points (0.1%) to 2,718, and the NASDAQ Composite advanced 7 points (0.1%) to 7,510. In moderately-heavy volume, 982 million shares were traded on the NYSE and 2.1 billion shares changed hands on the NASDAQ. WTI crude oil advanced $0.70 to $74.15 per barrel and wholesale gasoline was up $0.05 at $2.17 per gallon. Elsewhere, the Bloomberg gold spot price traded $4.28 higher to $1,252.53 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 94.60. Markets were lower for the week, as the DJIA declined 1.3%, the S&P 500 Index was also 1.3% lower and the NASDAQ Composite fell 2.4%.

Personal income rose 0.4% month-over-month (m/m) in May, matching the Bloomberg forecast, and versus April’s downwardly revised 0.2% increase. Personal spending grew 0.2%, below expectations of a 0.4% gain, and versus April’s downwardly revised 0.5% increase. The May savings rate as a percentage of disposable income was 3.2%. The PCE Deflator was up 0.2% m/m, in line with expectations and the prior month’s unrevised rise. Compared to last year, the deflator was 2.3% higher, above estimates of a 2.2% increase and April’s unrevised 2.0% gain. Excluding food and energy, the PCE Core Index was 0.2% higher m/m, matching expectations and the prior month’s unrevised gain. The index was 2.0% higher y/y, above estimates of a 1.9% gain and April’s unrevised 1.8% rise.

The final June University of Michigan Consumer Sentiment Index was adjusted lower to 98.2, from the preliminary 99.3 figure, versus forecasts to dip to 99.0. The index was slightly above May’s 98.0 level. The downward revision came as the expectations and current conditions components of the report were both adjusted lower, with the former down and the latter up versus May’s figures. The 1-year inflation forecast rose m/m to 3.0% from 2.8% and the 5-10 year outlook ticked higher to 2.6% from 2.5%.

The Chicago Purchasing Managers Index unexpectedly improved to the second highest level of the year, rising to 64.1 for June from May’s 62.7 level, above expectations of 60.0. A reading above 50 denotes expansion.

Treasuries finished lower, with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 2.53% and 2.86%, respectively, and the yield on the 30-year bond gaining 3 bps to 2.99%.

U.S. stocks declined this week as global trade concerns pressured the technology sector amid the continued volley of tariff rhetoric between the U.S., Europe and China. Harley Davidson (HOG $42) had a rough week, warning that retaliatory tariffs from the EU would increase its export costs and force it to move some production to its international facilities. The announcement that the U.S. aims to rely on the Committee on Foreign Investment in the U.S. (CFIUS) to police the foreign acquisition of sensitive domestic technologies briefly calmed trade concerns as it was seen as a softening stance against China, but uncertainty festered. Signs that financial conditions may continue to firm also appeared to curb conviction, despite the yield curve flattening some more, as the Fed, ECB and BoE seem poised for moves toward tighter policies. Although the energy sector rose, the continued grind higher in crude oil prices to multi-year highs, bolstered by a call from the U.S. to its allies to boycott oil imports from Iran, appeared to foster some weariness. The U.S. dollar’s recent run—cooled somewhat by Friday’s drop—was also a source of choppiness. Healthcare issues came under pressure after Amazon’s (AMZN $1,705) agreement to acquire online pharmacy Pill Pack shook pharmacy-related stocks. However, losses for the week were held in check by two-straight days of gains to close out the week, as well as M&A activity that continued to pour in and the economic picture that remained solid, as a host of regional manufacturing data improved, while housing sales and earnings reports from the sector were upbeat.

Schwab Center for Financial Research – Market Analysis Group

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