S&P 500 closed Friday at 5,721. VIX at 17.1. Ten-year yield at 4.40%. Two-year yield at 4.52%. Gold at $3,498. DXY at 98.9.
A quiet week with one loud number.
CPI: The Soft Surprise Everyone Needed
Wednesday's CPI print was the data event of the week, and it delivered. Headline CPI came in at 3.1% year-over-year versus the 3.3% consensus expectation. Core CPI — which excludes food and energy and is the number the Fed actually cares about — came in at 3.4%, down from 3.6% in April.
Neither number is close to the 2% target. Let's be clear about that. But the direction matters at least as much as the level at this stage of the cycle. Two consecutive months of core CPI deceleration, combined with a Fed that has been on hold since February, changes the probability distribution for when cuts start.
The bond market's reaction was immediate. Ten-year yields fell from 4.52% at Tuesday's close to 4.40% by Friday — a 12 basis point move in three days. Two-year yields were nearly flat, moving from 4.51% to 4.52%, which means the curve steepened by roughly 11-12 basis points on the week. That steepening is a signal worth noting: the market is pricing in more cuts at the short end while the long end holds, reflecting slightly higher growth and inflation expectations relative to near-term policy.
This is exactly the environment where duration starts earning its keep.
Gold Back at $3,500
Gold retested $3,500 on Thursday, closing the week at $3,498. That is a $48 move from last Friday's close of $3,452, driven almost entirely by the rates move. Lower real yields lift gold. Lower nominal yields lift gold. A softer dollar helps gold. All three were in play this week.
I did not add to my gold position at these levels. I hold 8% and the thesis is intact — central bank buying, de-dollarization flows, geopolitical risk premium. But $3,500 is near resistance from the early-May highs. I want to see a clean break with volume before adding.
If the next CPI print (June 11) continues the disinflationary trend, gold at $3,600 before summer is a reasonable scenario.
Yield Curve and Rotation
The curve steepening — 2s10s moving from -2bps to +11bps on the week — matters for sector allocation in ways that are not always immediately obvious.
Steepening curves tend to benefit financials (better net interest margins on the asset side), pressure growth-oriented tech (longer duration cash flows get discounted at higher long rates), and support rate-sensitive defensive sectors. This week the data confirmed that rotation in real time: utilities were up 2.1% and consumer staples up 1.8% versus tech broadly flat and semiconductors slightly negative.
It's too early to call a regime change. One week of curve steepening does not mean the great rotation from tech to defensives is underway. But I am watching the 2s10s spread weekly. A sustained move above +20bps would change how I think about sector weights.
What I Did This Week
I added to both TLT and LQD on Wednesday afternoon, after the CPI print was fully digested. The trade logic is simple: if yields fell 12bps in three days on one data point, and if the inflation trend is genuinely decelerating, the rate move has further to go. I want duration exposure.
TLT (20+ year Treasury ETF): added about 3% of portfolio weight. Average entry around 4.43% on the underlying yield.
LQD (investment-grade corporate bond ETF): added 2% of portfolio weight. Investment-grade spreads are still tight at around 95bps over Treasuries, but the absolute yield on IG corporates around 5.3-5.4% is attractive for a medium-term hold if rates continue falling.
The combined bond allocation is now at 18% of the total portfolio, up from 13% entering the week. That is deliberate.
On equities: no changes. SPX up 1.4% for the week was a comfortable week to hold. I did not add to equities — I have been waiting for a re-entry point on the Nasdaq exposure I trimmed last week, and the market did not offer it. The tech sector was essentially flat.
What I'm Watching Next Week
FOMC minutes Wednesday, May 20. The minutes from the May 7 meeting will be dissected for any signal about the pace of future cuts. Specifically, I'm looking at the inflation language — did any members push back on the "making progress" framing? And what is the discussion around the balance sheet? Quantitative tightening at current pace, combined with lower rates, creates complex plumbing effects.
Housing data. Building permits and housing starts hit Thursday. After two months of softness, any sign of stabilization in housing would support the soft-landing case.
Retail sales revision. The May 15 advance retail sales figure came in flat at 0.0% month-over-month. That is better than the -0.5% in March, but not strong. The revision to the April number will tell us whether the consumer is genuinely stabilizing or just bouncing along the bottom.
Gold near $3,500, bonds with fresh positions, equities broadly held. I am more confident in the macro direction this week than I was entering Week 19.
— R.A.