In recent market activities, we observed a notable shift from technology-related stocks to the other nine sectors of the S&P 500. This rotation aligns with various economic indicators and market responses, balancing between growth and weakness as the economy strives for a soft landing amidst inflation concerns.

Economic Data and Market Reactions
The recent update to Q1 GDP revised economic growth down from 1.6% to 1.3%, mainly due to a decrease in consumer spending growth. This revision, coupled with a slight drop in inflation rates, led to lower bond yields and a rally in interest-rate-sensitive sectors. However, the weak housing data, with pending home sales at a four-year low despite increased inventory, presented a mixed picture. Mortgage rates above 7% contributed to this decline, underscoring the ongoing balancing act between economic strength and weakness.

PMI Insights and Inflation Trends
Last week’s Flash PMI report showed a surprising uptick in economic activity for May, providing a counterbalance to the revised GDP data. The PMI indicated a two-year high in manufacturing and service sector strength, suggesting a rebound in economic activity from Q1. This report aligns with the PCE Price Index, which showed a moderate increase in inflation, reinforcing the narrative of a gradual move towards the Fed’s inflation target.

Manufacturing Sector and Market Sentiments
The ISM Manufacturing Index indicated a modest contraction, raising concerns about economic resilience. However, the S&P Global survey showed unexpected growth, highlighting a discrepancy between different measures. When averaged, these surveys suggest the manufacturing sector is on the cusp of recovery after an 18-month downturn, with export order growth leading the way. Both surveys noted upward price pressures for input costs, yet a moderation in selling prices, indicating consumer resistance to price hikes.

Job Market and Economic Growth Expectations
The April Job Openings and Labor Turnover Survey (JOLTS) showed a larger-than-expected drop in job openings, aligning with a slowdown in economic activity. The Atlanta Fed’s GDPNow tracker also lowered its Q2 growth expectation, reflecting recent softer economic data. Despite these signals, a rebound in gasoline demand suggests that consumers may not be as financially strained as feared. This balance of growth and weakness is essential for achieving a soft landing and controlling inflation.

As we navigate through mixed economic signals, the stock and bond markets are reflecting a balance between strength and weakness necessary for a soft landing. The rotation from tech to other sectors, coupled with moderated inflation rates and varied manufacturing data, points towards a cautiously optimistic outlook. Investors should focus on the broader economic trends and avoid succumbing to fearmongering, recognizing the underlying strength in the market’s response to ongoing economic adjustments.