At a glance

The S&P 500 pressed to its first all-time high since February 19 last week. Investors cheered higher odds of Federal Reserve interest rate cuts and incremental improvements in economic growth expectations.

Number of the week:

4.5%

The increase in consumer spending in May compared to a year earlier, down from 5.2% in April.

Term of the week:

Consumer spending

The total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy. Contemporary measures of consumer spending include all private purchases of durable goods, nondurable goods and services.

Quote of the week:

Economists expect coming U.S. inflation reports to capture tariff-induced price increases. Personal consumption expenditures showed prices increased 2.3% year-over-year in May, and economists expect that to rise to 3.1% inflation by year-end. Consumers remain concerned about inflation, with expectations of 5.0% inflation over the next year, according to the University of Michigan Consumer Sentiment Index.

― Bill Merz, CFA, Senior Vice President, Head of Capital Markets Research and Portfolio Construction, U.S. Bank

Global economy

Quick take: Economists revised economic growth forecasts slightly higher in recent Bloomberg surveys. Purchasing manager indices (PMIs) reflect expanding economic activity in the preliminary June reports. Data covering consumer spending and unemployment claims weakened sequentially, but their levels are still consistent with healthy economic conditions.

  • Preliminary June S&P PMIs across the U.S., United Kingdom (U.K.) and eurozone reported expanding economic activity last week. Service sector results continue to indicate economic growth in all three regions. Manufacturing PMIs reflected expanding activity in the U.S. but weakening conditions in the U.K. and eurozone. The Institute of Supply Management will release additional PMIs this week that provide details on new purchase orders, prices and employment changes.
  • Aggregate U.S. consumer spending grew 4.5% year-over-year in May, slightly slower than the 5.2% growth in April. High-frequency data from Bloomberg covering credit and debit card transactions suggest consumer spending continues to temper in June. The modest slowdown in spending growth corresponds with somewhat softer labor market data. Personal incomes grew 4.5% year-over-year in May, slower than April but still outpacing inflation. Continuing unemployment claims ticked higher in recent weeks, though this is normal in summer months. Job openings, layoffs, quit rates and payroll growth will be released this week, providing additional insight into labor market conditions.
  • Economists expect coming U.S. inflation reports to capture tariff-induced price increases. Personal consumption expenditure prices increased 2.3% year-over-year in May, and economists expect the indicator to rise to 3.1% by year-end. Consumers remain concerned about inflation, with expectations of 5.0% inflation over the next year, according to the University of Michigan Consumer Sentiment Index.
  • Congress hopes to pass the One Big Beautiful Bill Act this week. The Senate worked through changes to the bill last week to meet the requirements necessary to pass it with a simple majority vote. The Congressional Budget Office forecasts tariff revenues can help offset incremental government spending from the bill. Tariff revenues totaled $27 billion in June, nearly $20 billion more than a year ago.

Equity markets

Quick take: The S&P 500 ended last week at all-time highs, up 3.4%, bolstered by easing trade tensions and de-escalation of the Israel-Iran conflict. Inflation, interest rates and earnings support equity prices. Geopolitics and second quarter earnings reports beginning in mid-July are among upcoming catalysts expected to impact investor sentiment and equity prices at the start of the second half.

  • International and domestic equities posted strong returns last week. The international developed MSCI EAFE, MSCI Emerging Markets, S&P 500 and small cap-oriented Russell 2000 indices advanced between 3.0% and 3.4%. Easing trade tensions, de-escalation of the Israel-Iran conflict, and benign inflationary data all contributed to a risk-on bias, helping propel the S&P 500 to an all-time high of 6,173, surpassing the previous high of 6,144 reached on February 19. For the year as of Friday’s close, international stocks continue to outpace domestics by a wide margin. The MSCI EAFE and MSCI Emerging Markets indices are up 19.9% and 16.0%, respectively, compared to 5.6% for the S&P 500.
  • U.S. market breadth continues to expand, one indicator of underlying economic strength. Nine of 11 S&P 500 sectors are positive for the year, as of Friday’s close, advancing between 1.4% and 12.1%. Industrials (12.1%), Communication Services (10.8%) and Utilities (9.0%) are leading. Strong demand for artificial intelligence (AI)-related applications, data center buildout and electrification are among factors driving these sectors higher.
  • S&P 500 valuations are elevated, suggesting a narrow margin of error. Analysts currently project $263 for S&P 500 earnings in 2025 and $297 for 2026, according to Bloomberg, FactSet and S&P Cap IQ, representing roughly 7.5% and 13.0% year-over-year growth, respectively. Accordingly, the S&P 500 ended last week trading at respective 2025 and 2026 consensus earnings multiples of 23.5 and 20.7 times. While elevated, valuation is a poor timing tool; it can stay extended for a prolonged period, absent inflation and rising interest rates.
  • The second quarter reporting period unofficially begins during the week of July 14 with the releases from several money center banks. Consumer and business spending trends, loan growth, credit default trends, capital spending and returns on AI-related investments are among items expected to be closely watched by investors. Additionally, forward earnings guidance, impact of tariffs, and insights into back-to-school and holiday spending expectations are likely to impact investor sentiment and equity prices during the second quarter release period.

Bond markets

Quick take: Treasury yields fell last week, supporting positive returns across the bond market. Riskier corporate bonds performed well, reflecting healthy investor risk appetite. Bond yields reflect two to three Federal Reserve (Fed) interest rate cuts later this year.

  • The Fed will likely wait for greater clarity on tariffs before cutting rates. Last week, in his testimony to congress, Fed Chair Jerome Powell reiterated that the Fed does not need to rush to cut rates. Powell described the overall economy and labor markets as strong but noted that economists expect an inflation surge from tariffs in coming months. Powell said if inflation pressures remain contained, the Fed could cut rates sooner. Bond yields indicate a low probability of the Fed cutting rates at its next meeting in July, despite comments from some Fed officials to the contrary. Investors expect the Fed first cuts in September and two to three by year-end.
  • Treasuries delivered positive returns last week. Yields fell and prices rose across all Treasury maturities, with yields on two-year notes falling the most. Longer-maturity bonds, which are more sensitive to changes in interest rates, performed the best. Also last week, regulators proposed changes to ease capital requirements for banks. The changes aim to enhance banks’ flexibility to own Treasuries to facilitate smoother Treasury trading conditions, which spurred investor hopes for more demand to own Treasuries from banks.
  • Most corporate and municipal bond prices rose last week. The extra yield on corporate bonds over Treasuries, which compensates for credit risk, declined as corporate bond prices rose. Corporate bond valuations are expensive, but most issuers have solid fundamentals. Municipal bonds offered mild gains but still face headwinds from elevated bond supply. State and local governments sold $153 billion of new debt in the second quarter, a record amount. Elevated issuance is a headwind for municipal bonds, because higher yields, which lower prices, are needed to incentivize enough investor demand to meet supply. Consequently, municipal bonds offer compelling opportunities to generate substantial income for taxable investors.
  • Unique bond categories delivered positive returns last week. Mortgages not backed by the government, highly rated collateralized loan obligations and insurance-linked securities (reinsurance) all gained. These categories can introduce unique return sources for portfolios while generating substantial income.

Real assets

Quick take: Real estate investment trusts (REITs) fell last week despite higher equity prices and lower Treasury yields. Oil prices fell after the cease fire between Israel and Iran reduced the risk of supply disruptions. Global infrastructure returned 1.7% with support from gains in utilities that represent roughly 40% of infrastructure exposures.

  • REITs fell 0.7% last week, but weakness was primarily concentrated in data center and office properties. A major data center REIT dragged broad public real estate indices lower due to investor concerns over its near-term capital spending plans. Office REITs fell 2.7% due to struggles with high vacancy and stagnant rental income. Office REITs account for just 3% of broad REIT exposures and are up over the past month. Returns were better in the three largest publicly traded real estate sectors. Retail, telecommunication and healthcare REITs combine to represent more than 40% of public REIT exposures, and all delivered positive returns last week.
  • Oil prices fell 13.1% last week, dragging broad commodity exposures lower. The ceasefire between Israel and Iran early last week eased concerns of oil supply disruptions. Investor attention will turn to the Organization of the Petroleum Exporting Countries (OPEC) meeting on Sunday, when the group comprised of major oil-producing countries decides on August production targets. OPEC agreed on output target hikes in each of its past three meetings. Other commodities had mixed returns. Gold prices fell 2.5% last week but are still up more than 24% this year. Copper prices gained 4.6% in the U.S. Copper prices are over 10% higher in New York than in London as U.S. buyers front-load purchases ahead of potential tariffs. In total, broad commodity exposures ended last week down 4.4%.
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This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The NASDAQ Composite Index is a market-capitalization weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. The MSCI EAFE Index includes approximately 1,000 companies representing the stock markets of 21 countries in Europe, Australasia and the Far East (EAFE). The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. The Institute of Supply Management Manufacturing Index, also called the Purchasing Manager's Index, measures manufacturing activity based on a monthly survey, conducted by the Institute for Supply Management, of purchasing managers at more than 300 manufacturing firms. The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. The survey is based on telephone interviews that gather information on consumer expectations for the economy. The Conference Board is a nonprofit research organization that distributes vital economic information to its peer-to-peer business members.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

Start of disclosure content

The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.