Great Rotation: AI Cracks, Cyclicals Bounce, and Russell Tops 3,000

The post-FOMC week delivered a classic rotation tape. Mega-cap tech and AI plays got obliterated, while cyclicals, small caps, and value names had a banner week. The Nasdaq Composite tumbled -4.60% to 25,297.62 - its fifth consecutive losing session into Friday - as investors fled AI infrastructure exposure on news that OpenAI is reportedly delaying its IPO to 2027 and growing market angst about AI data-center capex returns. The S&P 500 slid -1.95% to 7,354.02, its second losing week in the last 13. Meanwhile the Dow added +0.60% to 51,876.11, the NYSE Composite rose +0.81% to 23,689.23, and most importantly the Russell 2000 cleared 3,000 for the first time in history Monday Jun 22 (closing at 3,004.40), finishing the week at 3,010.08 (+1.02% wk, +21.26% YTD). The VIX ticked up just modestly to 18.89.

Friday's main event arrived early Thursday morning: May Personal Consumption Expenditures. Headline PCE rose 4.1% YoY - the highest annual reading since April 2023 - and Core PCE accelerated to 3.4% YoY, the highest since October 2023. Monthly moves were in line at +0.4% headline and +0.3% core. The simultaneous Q1 GDP final revision came in at +2.1% annualized, revised UP from the 1.6% second estimate (itself revised down from the 2.0% advance) primarily on lower imports - though consumer spending was revised DOWN sharply to just +0.5% annualized. May durable goods orders fell -4.5% headline (in line), but ex-transportation rose +1.3% (beating +0.5% expected) and core capex jumped +1.6%. Initial jobless claims remained tame. The takeaway: the economy is still growing, inflation is still hot, and the Fed's June hawkish reset looks justified.

The Oil Story: Below $70 as Hormuz Normalizes

WTI crude crashed -9.04% on the week to $68.86 - the lowest level since February - as Strait of Hormuz shipping volumes accelerated back to roughly 75% of pre-war levels under the U.S.-Iran framework signed last Wednesday. Brent followed lower. U.S. crude briefly dipped below $70 mid-week as tankers transited the Strait visibly. There was a complication: President Trump accused Iran of violating the ceasefire by shooting drones at ships near Hormuz Friday morning, briefly bouncing oil before it resumed its decline. The energy unwind is dragging gasoline and diesel back toward $3.40/gal nationally, which - if sustained - solves a piece of the inflation problem the Fed has been hawking about.

Michigan Final: Sentiment Climbs, Inflation Expectations Cool

Friday's final University of Michigan Consumer Sentiment for June rose to 49.5 from the preliminary 48.9, up from May's record-low 44.8. The expectations component climbed to 50.7 (highest in three months) on easing Iran-conflict worries. Crucially, 5-10 year inflation expectations dropped to 3.3% (vs. 3.4% prelim, 3.9% in May), and 1-year inflation expectations stayed at 4.6% (down from 4.8% in May). The Fed will note the long-run anchor holding. Cost of living, however, remains the dominant concern in consumer responses.

Crypto Gets Caught in the Risk-Off

Bitcoin lost 7.71% on the week, finishing at $58,980, breaking decisively below $60K on Friday morning. The combination of hawkish-Fed dollar strength, AI/tech rotation, and OpenAI IPO delay news weighed on the broader risk-asset complex. Gold also stumbled -4.53% to $4,089 - its fourth consecutive weekly decline - as the DXY climbed to 101.36, briefly hitting a 13-month high mid-week. Treasuries diverged: the 10-year yield FELL 8 bps to 4.38% as the oil crash and the GDP downward revision of consumer spending out-muscled the hawkish Fed and hot PCE.

June Jobs Comes Early, ISM Mfg, and a Holiday-Truncated Tape

The first week of July is holiday-shortened, with U.S. markets closed Friday July 3 (observed July 4) and a likely early 1 PM ET close Thursday. The marquee data is the June Employment Situation Report on Thursday July 2 - released a day early due to the holiday. Consensus is around +172K nonfarm payrolls with unemployment holding at 4.3%. After the +172K May print and the Fed's hawkish dot plot, this is the data point that will determine whether markets price in the FOMC's signaled hike or call the bluff. Conference Board Consumer Confidence Tuesday, ISM Manufacturing Wednesday, and Warsh's first international speech (Sintra forum in Portugal) Wednesday round out a punchy compressed week.

Mon Jun 29: Quiet Open / Pending Home Sales

Pending home sales for May at 10:00 AM ET. Otherwise a quiet open to the week, with month-end and quarter-end rebalancing flows likely to dominate.

Tue Jun 30: Consumer Confidence & Chicago PMI

Conference Board Consumer Confidence for June at 10:00 AM ET (May was 93.1). Chicago PMI also releases. Quarter-end - watch pension fund equity-to-bond rebalancing.

Wed Jul 1: ISM Mfg PMI & Warsh in Sintra

ISM Manufacturing PMI for June at 10:00 AM ET (May was 54.0% - highest since May 2022). JOLTS job openings same time. Chair Warsh delivers his first international speech at the ECB Sintra forum in Portugal at 9:30 AM ET - any hint of policy framework shifts will move markets globally.

Thu Jul 2: June Jobs Report (Early)

The Employment Situation for June at 8:30 AM ET - released a day early due to the holiday. Consensus: +172K nonfarm payrolls, 4.3% unemployment, +3.4% YoY average hourly earnings. ISM Services PMI, jobless claims, and trade balance also release. Early markets close (likely 1 PM ET).

Fri Jul 3: U.S. Markets Closed (July 4 Observed)

U.S. equity and bond markets CLOSED for Independence Day (observed Friday since July 4 falls on Saturday). No trading. Resumes Mon Jul 6.

With the Russell 2000 above 3,000, WTI below $70, and Core PCE at 3.4%, June ends with the macro narrative completely rewritten from late May. The Fed is hawkish, the consumer is wobbling, the oil shock is unwinding, AI hype is cooling, and small caps are quietly leading. A hot June jobs print Thursday would supercharge the dollar and likely send the 10-year back above 4.50%. A cool print (sub-100K NFP) would slam the door on the FOMC's hike narrative and likely reignite mega-cap tech. Pay attention to wage growth and the unemployment rate - they matter as much as the headline.