Roller-Coaster Week Ends on an Upswing

The stock market finished the week on a mostly higher note as investors digested an easing of the political crisis in Italy, fresh tariff-related developments, and the Employment Situation report for May. The S&P 500 (+0.5%), the Nasdaq Composite (+1.6%), and the Russell 2000 (+1.3%) advanced, while the Dow Jones Industrial Average (-0.5%) finished a step lower.

U.S. markets opened the week on Tuesday following a three-day Memorial Day weekend. Sellers dominated that Tuesday session after Italian President Sergio Mattarella blocked the formation of a euro-skeptic government, vetoing the economic minister nominee of an anti-establishment coalition that was aiming to come to power. Italian bond yields surged in reaction as some feared the veto would prompt a snap election that could turn into a de facto referendum on Italy's membership in the European Union. The Italian political crisis calmed down on Thursday evening, when President Mattarella approved the formation of a ruling coalition between Italy's anti-establishment Five Star Movement and right-wing League party, effectively silencing the prospect of a snap election later this year.

Elsewhere in Europe, Spain endured some political drama of its own this week as Prime Minister Mariano Rajoy was ousted on Friday in a no-confidence vote following a corruption scandal involving 29 individuals with ties to his People's Party. Pedro Sanchez, the leader of the Socialist Party, will succeed Mr. Rajoy as prime minister. Separately, German financial giant Deutsche Bank hit a 16-month low on Thursday after The Wall Street Journal reported that it's on the Federal Reserve's list of troubled banks.

Back in the U.S., the stock market rebounded from its Tuesday slide on Wednesday with energy shares leading the charge following reports that OPEC and Russia will keep production cuts in place until at least the end of the year. West Texas Intermediate crude futures rallied on Wednesday in reaction, but still finished the week lower by 3.0%.

Stocks stumbled for a second time on Thursday when the Trump administration announced that it will let steel and aluminum tariff exemptions expire for the EU, Canada, and Mexico. The White House's decision, which elicited retaliatory responses from the EU, Canada, and Mexico as expected, will result in duties of 25% on steel imports and duties of 10% on imports of aluminum, effective June 1.

Wall Street bounced back on Friday, bolstered by an easing of the political tension in Europe, news that the June 12 summit with North Korea is back on, and the release of the Employment Situation report for May, which featured a better-than-expected increase in nonfarm payrolls (+223K actual vs +190K Briefing.com consensus) and a lower-than-expected unemployment rate (3.8% actual vs 3.9% Briefing.com consensus). The average hourly earnings figure came in as expected, showing a month-over-month increase of 0.3%.

The key takeaway from the employment report is that it still had a Goldilocks hue to it, having been accented with strong job growth and only moderate wage inflation. Furthermore, the strong job growth and low unemployment rate created some good feelings about the potential for a pickup in consumer spending that should aid the second quarter growth outlook.

Six of eleven S&P sectors declined this week, with financials (-1.3%), telecom services (-0.9%), and industrials (-0.7%) being the weakest performers. Conversely, energy (+2.5%), technology (+2.0%), and real estate (+1.7%) were the top-performing groups.

Retailers dominated the earnings front once again, with Costco (COST), Dollar General (DG), Dollar Tree (DLTR), lululemon (LULU), Ulta Beauty (ULTA), Dick's Sporting Goods (DKS), and others reporting their quarterly results, which came in mixed. The SPDR S&P Retail ETF (XRT) settled roughly flat for the week.

U.S. Treasuries were volatile this week, eventually finishing with modest gains. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, finished the week lower by three basis points at 2.90%. Meanwhile, the U.S. Dollar Index eked out a fractional gain, settling the week at 94.22.

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