• The 10-year Treasury note yield (TNX) dropped 4 basis points to 3.69%.
• The U.S. Dollar Index ($DXY) is flat at 102.72.
• The Cboe Volatility Index® (VIX) futures jumped to 14.29 but remains near recent 3-year lows. Contracts for later this year are higher, however, signaling that investors expect more volatility down the road.
• WTI Crude Oil (/CL) rose slightly to $69.63 per barrel after the weekend’s attempted rebellion in Russia.

• Tuesday morning brew: Soon after the opening bell tomorrow come the May New Home Sales and June Consumer Confidence reports. The homes tally could be solid considering the strength seen in last week’s Housing Starts and Building Permits figures. New home sales have been trending upward this year after last year’s steep drop.
• New home sales are seen at a seasonally adjusted 670,000 in May, down from 683,000 in April, according to Trading Economics. New home sales have climbed steadily since their lows last fall, and some homebuilders hint that buyers are growing used to elevated mortgage rates.
• Consumer Confidence from the Conference Board is expected to come in at 103.5 in June, up from 102.3 in May, Trading Economics says.
• Window washing: Because this is the final week of Q2, we may see what Wall Street veterans colloquially call “window dressing.” That’s when major fund managers exit losing positions and buy stocks with better track records to present cleaner reports to clients. It could mean more volatility in coming days.
• Weekly diary: The calendar ahead includes the government’s final estimate for Q1 Gross Domestic Product (GDP) growth on Thursday. The most crucial report before the end of the quarter is this Friday’s May reading on Personal Consumption Expenditure (PCE) prices, the inflation metric most closely followed by the Fed. The last PCE update—for April—showed an annual increase of 4.4% in the overall rate and 4.7% in the core rate, which excludes food and energy prices.

It starts tomorrow before the open with Walgreens Boots Alliance (NASDAQ:WBA). Shares of the pharmacy chain rose the last time it reported in late March, as earnings beat expectations. However, spring didn’t provide much sunshine for shareholders, who watched the stock sink along with shares of competitor CVS (NYSE:CVS). One source of pressure could be the “lapping” of peak COVID-19 demand that helped drive profits a year ago.

Another “extra-wide” company reporting this week is Nike (NYSE:NKE), with results expected Thursday afternoon. Disappointing earnings and guidance from Foot Locker (NYSE:FL) in late May cast shadows ahead of Nike’s report. As a reminder, Nike and Foot Locker have a partnership, and Foot Locker said it was dealing with a “constrained supply” of Nike products.

Vulnerabilities surface: Recent weakness in the Russell 2000 (RUT) index of small-cap stocks might reflect rising Treasury yields and worries about the economy. Small companies are often more dependent than larger ones on borrowed money, and the benchmark 10-year Treasury note yield is up more than 40 basis points from recent lows. Meanwhile, last week’s news that May Leading Economic Indicators (LEI) fell for the 14th consecutive month is a reminder that smaller companies tend to be more sensitive to U.S. recession risk than larger companies with greater overseas sales exposure.

Inversion reversion: The 2-year Treasury note yield remains below last year’s peaks of above 5%, but its rally versus the 10-year yield is far from bullish for stocks. It could signal growing belief that interest rates are likely to rise and remain elevated for some time. The narrowing of the curve between the 2-year and 10-year yields a couple months ago might have reflected ideas that the Fed would hold off on future rate hikes after several bank failures. That doesn’t seem to be happening. An inverted yield curve often indicates economic softness ahead. If you believe what the yield curve says, the double-whammy of higher inflation and rising interest rates (which tend to slow economic growth) paint a potentially disappointing picture. Stagflation is the “he who must not be named” of the stock market.

Being green: Despite a rally Friday, the U.S. dollar index continues trading in a narrow range between roughly 100 and 105, where it’s been most of the last six months. The stability of this crucial asset arguably helped set the stage for what’s been a less volatile 2023 stock market, despite all sorts of volatility in bonds. In contrast, the dollar was all over the map last year, ranging from below 95 to above 114. The dollar index hasn’t been this rangebound since 2019. A move out of the range, if it happens, might be seen as bearish for stocks, whether it’s down or up. If the dollar climbs above 105, it could be a sign that investors expect an even more hawkish Fed. A drop below 100 could reflect heightened worries about the U.S. economy, though it would probably be helpful for U.S. companies in sectors like info tech and industrials that have a large percentage of overseas sales. However, last week’s disappointing manufacturing data from Europe lifted the greenback versus the euro, making any forecast for a near-term dollar dip below 100 look premature.