Market Storylines: Tech Rotation, Iran Volatility + Small Cap Strength

**Eric Criscuolo** (0:00)
Hey, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week, we're here to keep you up to date on the key trends and events driving global markets. We're recording this on Thursday, June 11th, after an insane, record-breaking, come-from-behind victory by the Knicks in Game 4 of the NBA Finals. So let's dive in.
Last week, the S&P 500's nine-week winning streak came to an end. As Michael noted last time, we were lined up to make it 10 straight, but still had a monthly jobs report to digest on Friday. Now, that data came in strong, sending treasury yields higher, pressuring equities, and piling onto already present tech weakness to push the index into the red for the week. Moving to this week, Iran news continued to cross the tape with variations on an established theme. That theme being, the US and Iran exchanged fire overnight without further escalation, and follow-up reports continued to note negotiations continue. Markets still reacted to these updates, but it felt like the magnitude of the reactions had moderated.
In more market-centric updates, there was a ton of tech news, including earnings from Oracle, open AI confidentially filing for an IPO, though it will be a while, and more capital raises for AI build-outs. A flurry of broker conferences provided corporate updates, which were largely sanguine on the economy. Now, equities began the week with a modest bounce on Monday from Friday's losses. However, it was basically all tech, as almost every other sector was lower. As the week progressed, this dynamic flip-flopped. Tuesday saw tech weakness return, while the rest of the market was strong. The S&P 500 fell 0.3% that day, but the equal weight rose 0.8%, and 9 of 11 sectors were higher.
Wednesday brought this week's most important data, the latest CPI report. It was more or less in line with the core reading coming in a little cooler than expectations. However, it still moved up from last month on a year-over-year basis and remained well above the Fed's target of 2%.
Yields moved higher, in particular at the long end, but it didn't explain the magnitude of the weakness that followed. Tech was hit the hardest. The rotation out of the sector that Michael touched on last week continued to play out. As we were getting ready to record this, right on cue, President Trump canceled planned strikes on Iran this evening and said a framework for an agreement was reached, though it looks like Iran hasn't yet signed off on the deal, so I don't really know what that means.
Oil fell through the floor, yields dropped and equities jumped, but not quite as high as OG and Ennobi on that game-winning tippet. We're currently looking at a modest decline for the S&P 500 this week. However, the equal weight is positive, pointing to decent breath and that rotation out of tech and into other areas. Small caps are significantly outperforming, with smaller regional banks and financials a notable source of strength. The defensive consumer staples sector is leading this week. Now, that's not necessarily a bullish signal, but it's also not alarming. And tech and industrials, which were lagging, ripped higher on Thursday on the Iran News. Notwithstanding today's move, the tech sector's weakness in June has generated considerable attention for obvious reasons. Since peaking at the beginning of the month, the XLK tech ETF was down over 10%, marking a so-called correction. The DRAM ETF composed of those high-flying memory chip producers was down 12%.
The IGV software ETF was on track to fall eight straight days after a scorching rally from down over 25% year-to-date to up 5%.
The mega-caps were also down about 10%. Now, there are several potential reasons why all this happened. Among them, investors locking in terrific gains over the past few years, the need to free up capital ahead of some big IPOs coming down the pipe, and on the bearish side, some concern about the impact of these big IPOs on equity performance overall, as well as the return on all of this AI spending. Now, we saw signals that some of this money was just rotating to other equity areas. Despite the S&P 500 being down 3% in June, the equal weight was flat, and the S&P small cap index was up 2%.
Financials and health care, two of the lagging sectors here to date, are up in June. However, it's not enough to keep the flagship market cap weighted index above water.
Taking a look at commodities, crude was relatively flat for the week, but dropped after Trump's comments today. Precious metals continue to slide. Gold is down about 5%, falling below its 200-day moving average. A jump in yields on Thursday is providing some uplift. Crypto weakness stabilized this week before Bitcoin and Ether jumped on Thursday, now up about 3% for the week.