Equities were higher across the board last week, as market participants became more comfortable with the prospect of a first rate hike taking place sometime in late 2022. All sectors of the S&P 500 posted gains, led by cyclicals including energy (+6.7%), financials (+5.3%), and industrials (+3.1%). Defensive sectors lagged the rally, including healthcare, consumer staples, real estate, and utilities.

As often happens during cyclical rallies, small and midcap stocks performed very well, with the S&P Midcap 400 and the Russell 2000 both up more than 4% on the week. International stocks were higher too, but generally by smaller amounts relative to the US.

As odds of a 2022 rate hike rose, bond markets reacted by pushing yields higher across the curve: 2y Treasuries reached 27bp (highest since March 2020), 10y yields rose 8bp to 1.52%, and 30y yields were higher by 14bp to finish at 2.15%.

Economic news was mixed last week. New and existing home sales declined as affordability impacted transaction volumes; new jet aircraft orders buoyed durable goods orders; jobless claims ticked lower; consumer sentiment slipped according to U. of Michigan; and the Core PCE Deflator the Fed’s preferred inflation gauge) registered +3.4% y/y in May. See the Chart of the Week for a time series.