Top Things to Watch

Last week, the market experienced strong volatility spikes triggered by renewed Middle East tensions, with the S&P 500 dropping 1,1%, NASDAQ down 1,3%, and Dow Jones falling 1,8%.

This week, regardless of the upcoming events and reports, geopolitical risk will remain the top market catalyst.

Current geopolitical tensions triggered market selloffs and investor risk aversion. Bank of America reported $10 billion was withdrawn from global equity funds, with U.S. funds responsible for $9.8 billion - the largest outflow in eleven weeks!!!! Meanwhile, bond funds and safe havens like gold and emerging market debt saw strong inflows.

Energy and aerospace stocks performed well as geopolitical hedges. Specifically, aerospace and defense stocks are up 61% year-to-date, but be aware that these sector valuations can now be overstretched, so conduct a thorough analysis before hitting the "buy" button.

Last week, the companies that benefited the most include AAR Corp., Astronics, L3Harris, and Northrop Grumman.

This week is full of events and reports that will add volatility to the geopolitical scenario:

U.S. Manufacturing Purchasing Managers Index (PMI)

The PMI is considered a leading indicator, meaning it provides insights into future economic activity before hard data is available. Manufacturing, while a smaller portion of the overall economy than services, is more cyclical and can provide valuable clues about the current stage of the economic cycle. 

Analysts expect this index to decline slightly, but still remain above 50, indicating the sector remains resilient.

U.S. Services Purchasing Managers Index (PMI)

The upcoming U.S. Services PMI reading is expected to show continued expansion in the service sector, though possibly at a slightly slower pace than the previous month.

U.S. CB Consumer Confidence

This index focuses on consumers' views on current business and labor market conditions, as well as their short-term outlook for income, business, and labor market conditions. The upcoming reading is expected to show a rise, even if still below 100 (the 100 mark suggests consumers are optimistic, and signals increased spending).

U.S. Fed Chair Powell Testifies

Fed Chair Jerome Powell's two-day testimony this week is highly anticipated.

The Fed recently maintained interest rates at 4.25%-4.50%, but Powell's statements have shown a lack of firm conviction in future forecasts. Republicans view the Fed's stance as overly conservative and undermining, suggesting the Q&A will be contentious.

Markets will be extremely sensitive to any policy hints, as a decline in the next consumer spending report could force the Fed to cut rates, unless inflation due to higher oil prices becomes the dominant concern. Given the proximity of Powell's testimony and key data releases, even subtle shifts in wording could trigger significant market swings.

U.S. Crude Oil Inventories

Last week, U.S. crude stocks plummeted by 11.473 million barrels, far exceeding predictions and signaling that demand is outpacing supply, or that supply is disrupted.

Heightened Iran-Israel conflict and potential threats to the Strait of Hormuz (a critical oil chokepoint) are amplifying market sensitivity. While recent oil prices surge reflects this anxiety, and another deficit could drive prices higher, OPEC's spare capacity might temper the rally. Therefore, be carefull with the positions you open and don't forget to adjuts your "take profit" to secure your gains.

U.S. Durable Goods Orders MoM - May

This is a broad-based monthly survey that measures current industrial activity and is used as an economic indicator by investors. A robust reading suggests business confidence, supporting job growth and consumer demand, which could drive indices like the S&P 500 and NASDAQ higher, reinforcing "soft landing" hopes.

A strong report (above 0.5% monthly increase) would signal resilient U.S. manufacturing, potentially boosting equities, especially industrials and tech. However, given current Middle East tensions and inflation worries, a disappointing report (flat or negative) could trigger a risk-off move, favoring defensive sectors and Treasuries.

U.S. Core PCE Price Index YoY

This is the Federal Reserve’s preferred inflation gauge, and markets are hypersensitive to even minor directional shifts. After last week Fed dot plot, traders are now pricing in a 78% probability of a Fed cut by September.

If the Core PCE reading comes below previous it will signal disinflation, which means rate-sensitive stocks, like tech, consumer discretionary, will likely surge and the USD could weaken.