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S&P 500 notches best week since early June on favorable inflation data

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The S&P 500 (SP500) on Friday advanced 2.42% for the week to close at 4,505.68 points, posting gains in four out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) added 2.45% for the week.

The benchmark index rebounded from a negative first week of July by posting its best weekly performance since early June. The gauge also hit its highest levels since April last year.

Most of the positive sentiment this week was buoyed by key data on inflation. On Wednesday, the consumer price index (CPI) report showed a 0.2% M/M rise in June core CPI, the smallest such increase in more than two years. Following the consumer inflation data on Thursday was the producer price index (PPI) report, which showed a 0.1% M/M gain in June core PPI compared to an expectation of +0.2%.

The softer-than-anticipated inflation readings gave heart to market participants and led them to up their bets that the Federal Reserve would have to end its rate-hiking cycle sooner rather than later. On Friday, the rally stalled after the University of Michigan’s consumer sentiment report also showed an uptick in short-term inflation expectations.

The S&P 500’s (SP500) weekly performance was also helped by gains in heavyweight growth sectors such as Communication Services, Consumer Discretionary and Technology. The lattermost sector continued to add to its blistering run this year, with a few notable developments among megacap names: Amazon’s (AMZN) popular Prime Day shopping event set a sales record; Alphabet’s (GOOG) (GOOGL) Google unit expanded its artificial intelligence chatbot Bard to Europe and Brazil.

Perhaps the most significant and closely watched development was around Microsoft’s (MSFT) planned $69B acquisition of videogame publisher Activision Blizzard (ATVI). In a major victory for the two parties, a U.S. federal judge on Thursday denied the Federal Trade Commission’s request to temporarily block the mega deal. A UK appeals court has now set Monday for a hearing on the deal, after a report this week that Microsoft (MSFT) and Activision (ATVI) were evaluating selling some of their cloud-gaming rights in the UK.

Speaking of the advances in the Technology sector, the tech-heavy Nasdaq 100 (NDX) index is set for a special rebalancing with the changes to be announced on July 14, sparked by concerns around the outsized weightage of the so-called “Magnificent Seven” megacap stocks.

The busy week also saw the start of the Q2 earnings season, with traders receiving results from number one U.S. carrier Delta Air Lines (DAL), medical insurance giant UnitedHealth (UNH), beverage behemoth PepsiCo (PEP), and major banks including bellwether JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC). The earnings calendar heats up next week, with household names such as Tesla (TSLA), Netflix (NFLX) and Johnson & Johnson (JNJ) scheduled to announce their numbers.

Turning to the weekly performance of the S&P 500 (SP500) sectors, all 11 posted gains, with the aforementioned growth areas ending as the top three winners. Energy rose the least. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from July 7 close to July 14 close:

#1: Communication Services +3.36%, and the Communication Services Select Sector SPDR Fund (XLC) +3.23%.

#2: Consumer Discretionary +3.31%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) +3.28%.

#3: Information Technology +2.79%, and the Technology Select Sector SPDR ETF (XLK) +2.79%.

#4: Real Estate +2.63%, and the Real Estate Select Sector SPDR ETF (XLRE) +2.65%.

#5: Materials +2.48%, and the Materials Select Sector SPDR ETF (XLB) +2.49%.

#6: Utilities +2.26%, and the Utilities Select Sector SPDR ETF (XLU) +2.23%.

#7: Industrials +2.22%, and the Industrial Select Sector SPDR ETF (XLI) +2.27%.

#8: Health Care +2.03%, and the Health Care Select Sector SPDR ETF (XLV) +2.09%.

#9: Financials +1.96%, and the Financial Select Sector SPDR ETF (XLF) +1.96%.

#10: Consumer Staples +1.20%, and the Consumer Staples Select Sector SPDR ETF (XLP) +1.12%.

#11: Energy +0.58%, and the Energy Select Sector SPDR ETF (XLE) +0.82%.

Below is a chart of the 11 sectors’ YTD performance and how they fared against the S&P 500 (SP500). For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.

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