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U.S. Stock Prices Advanced for The Second Consecutive Week

Market Data as of Week Ending: 03/25/2022 unless noted otherwise

Equities

U.S. stock prices advanced for the second consecutive week as the S&P 500 reached its highest level in more than six weeks. The positive sentiment for risk assets was supported by concern in the bond market as Fed Chair Powell made a public statement that a 0.50% increase remains a possibility to help slow the pace of inflation. Large companies generally outperformed their small company peers while the style factor displayed mixed results. Ten of the eleven major economic sectors increased with health care as the only exception. Energy stocks were supported by surging oil prices and were followed by gains in the materials and utilities sectors. Real estate and consumer discretionary stocks lagged as some investors are clearly concerned that inflation will remain a problem. Developed foreign markets and emerging markets lagged gains in the U.S.

Bonds

U.S. Treasury yields rose again as the 10-year treasury ended the week at 2.48% and the 2-year note surpassed 2% to finish at 2.27%. Investor sentiment also supported risk assets in the bond market but the sharp increase in yields was such a strong headwind that all segments declined. High yield corporate bonds outperformed while government bonds lagged and underperformed across the curve. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week at nearly 3.8% and 6.4%, respectively.

Macroeconomic Data

Economic data releases were mixed and once again largely overshadowed by inflation concerns and the crisis in Ukraine. Durable goods orders were worse than expected and fell 2.2% in February. New and pending home sales followed a similar trend from last week and reported declines of 2.0% and 4.1% respectively. According to the National Association of Realtors, the combination of higher mortgage rates and rapid increase in housing prices, resulted in a 28% annual rise in mortgage payments as of February. According to S&P Global, the manufacturing and services sectors rebounded sharply in March as the US PMI composite reached an eight-month high of 58.5 after an omicron induced slowdown earlier in the year. The labor market remains tight as initial jobless claims dropped to 187,000 and reached its lowest level in more than 50 years. Business activity in Europe declined for the month of March, due to higher commodity prices and supply chain delays due to the war in Ukraine.

 

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U.S. Stocks Rebounded as The Fed Lifts Rates

Market Data as of Week Ending: 03/18/2022 unless noted otherwise

Equities

U.S. stock prices rebounded as the Fed announced their widely anticipated decision to raise short term interest rates. The Fed has decidedly pivoted toward a less accommodative stance as they attempt to address inflation that is at its highest level in more than 40 years. Stock prices were also supported by lower oil prices and favorable economic data that shows the risk of a recession this year remains low. Growth stocks outperformed their value counterparts while smaller companies generally lagged their large company peers. Ten of the eleven major economic sectors increased with energy as the only exception. Consumer discretionary and information technology were the best performing sectors followed by strong gains in the financial and health care sectors. Developed foreign markets and emerging markets also recovered but lagged strong gains in the U.S.

Bonds

U.S. Treasury yields rose and were supported by the Fed’s forward guidance that they anticipate six more rate hikes this year. The 10-year treasury ended the week at 2.15% and even the 2-year note is approaching 2%. Investor sentiment also pivoted in the bond market as long duration corporate bonds outperformed and delivered solid gains despite the rising yield environment. Government bonds declined across the curve and lagged. Yields were largely unchanged for both investment grade corporate bonds and high yield corporate bonds as they finished the week at 3.5% and 6.3%, respectively.

Macroeconomic Data

Economic data releases were mixed and largely overshadowed by the Fed’s policy decision and the crisis in Ukraine. Retail sales increased 0.3% in February over the prior month and were up more than 17% compared to the same period one year ago. However, after removing autos and gasoline, retail sales were down 0.4% in February. The National Association of Realtors reported that existing home sales declined 7.2% in February from the prior month, which was negatively impacted by a combination of higher mortgage rates and low supply. The labor market remains tight as initial jobless claims dropped to 214,000 and continuing claims have dropped down to 1.4 million. The Bank of England also increased interest rates with the primary distinction being that this is the third-rate increase for the central bank. Economic sentiment in Europe has deteriorated as the crisis in Ukraine has stoked even higher fears that inflation will be more persistent in the region.

 

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Stock Prices Drop as Inflation Reaches a 40-Year High

Market Data as of Week Ending: 03/11/2022 unless noted otherwise

Equities

U.S. stock prices fell, and the Nasdaq Composite reached bear market territory, down more than 20% from its prior peak, as the Russian invasion of Ukraine intensified. Following four consecutive quarters of more than 30% growth, the estimated first quarter of 2022 earnings growth rate for the S&P 500 is 4.8%, according to FactSet. Growth stocks lagged their value counterparts while smaller companies generally outperformed their large company peers. Ten of the eleven major economic sectors declined with energy as the only exception. Real estate and utilities were once again among the best performing sectors while consumer staples and technology stocks lagged. Developed foreign markets recovered and ended the week with a small gain; however, emerging markets significantly lagged most developed markets.

Bonds

U.S. Treasury yields rose as inflation reached a more than a 40-year high and the 10-year ended the week at 2.00%. Despite rising yields, higher quality government bonds fared better than the market and not surprisingly, short duration outperformed long duration bonds. Risk aversion spread to the bond market and yields accelerated for both investment grade corporate bonds and high yield corporate bonds as they finished the week at 3.5% and 6.3%, respectively.

Macroeconomic Data

Economic data releases were headlined by consumer price inflation that came in at 0.8% for the month of the February, which was up 7.9% over the past 12 months. Initial jobless claims rose 227,000 yet remain near the lowest levels on record. Job openings were better than expected and remain above 11 million. Despite a strong job market, higher prices have had a negative impact on consumer sentiment, as the monthly figure dropped to 59.7, its lowest level since 2011. Both the US and the UK announced that they would stop importing Russian oil and gas; however, countries in continental Europe that are more dependent on Russian energy will take a more measured approach.

 

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Stocks Decline as The Crisis in Ukraine Escalates

Market Data as of Week Ending: 03/04/2022 unless noted otherwise

Equities

U.S. stock prices declined as Russia’s invasion of Ukraine escalated and Russia was charged with a wide range of sanctions. With only a few exceptions, these sanctions have effectively closed off Russia, the world’s ninth largest by population and eleventh largest by GDP, to the most of their key trading partners around the globe. Growth stocks lagged their value counterparts while large companies generally outperformed their smaller company peers. The price of oil surged to more than $115 per barrel and the energy sector gained more than 9%. Traditionally defensive sectors such as healthcare, real estate, and utilities were once again among the best performing sectors while financials and technology stocks significantly lagged. Both developed foreign and emerging markets significantly lagged U.S. stocks for the second consecutive week.

Bonds

U.S. Treasury yields declined as the 10-year ended the week at 1.73%. In another turbulent week for bonds, characterized by increased volatility, higher quality government bonds were the best performing segment. Investment grade corporate bonds also delivered solid gains and long duration outperformed short duration bonds. Despite risk aversion in the stock market, yields narrowly declined for investment grade corporate bonds whereas high yield corporate bonds edged higher and finished the week at 3.1% and nearly 6.0%, respectively.

Macroeconomic Data

Economic data releases were mostly positive but continue to be overshadowed by the crisis in Ukraine. The job market continues to remain attractive as there were 678,000 jobs added in February, well above the consensus estimate. The unemployment rate dropped to 3.8% and initial jobless claims fell to 215,000, near the lowest levels on record. ISM reported that Manufacturing PMI beat consensus estimates and rose for a second straight month to 58.6 in February. Services PMI was more sanguine and declined to 56.5 for the month of February. China, which has been struggling to re-accelerate domestic growth, has not joined major countries in implementing sanctions against Russia. The commercial real estate market in China remains fragile and recent PMI data shows that the manufacturing and services sectors are only narrowly in growth territory at 50.4 and 50.2 respectively.

 

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