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Treasury Yields Reach Highest Level Since 2018

Market Data as of Week Ending: 05/06/2022 unless noted otherwise

Equities

U.S. stock prices generally declined for the fifth consecutive week as persistently high inflation and monetary policy remain front of mind for many investors. 87% of the companies in the S&P 500 have reported first quarter earnings, with 79% having reported a positive earnings surprise. Value oriented stocks outperformed their growth counterparts and large companies generally fared better than their smaller company peers. Performance dispersion was high among sectors as energy prices soared. Energy prices gained 10% for the week and were followed by small gains in the utilities, communication services, and financials sectors. Rising rates have started to pressure real estate since they rely heavily on debt financing. Real estate was the worst performing sector followed by consumer discretionary and consumer staples. Developed foreign markets posted a negative weekly return and lagged the U.S., while the decline in emerging markets was even more severe and finished the week down more than 4%.

Bonds

U.S. Treasury yields jumped nearly 0.20% as the Fed announced a widely anticipated 0.50% hike in policy rates. The 10-year treasury ended the week at 3.13%, its highest level since 2018. The front end of the curve was much more stable as the 2-year treasury remained nearly flat and ended the week at 2.74%. Higher quality government bonds outperformed for the week while credit sensitive bonds lagged. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week at nearly 4.5% and 7.3%, respectively.

Macroeconomic Data

Economic data was largely overshadowed by the Fed’s policy meeting where all eyes were focused on plans to reduce the size of the balance sheet. The Fed announced that starting in June, they will reduce treasury and agency mortgage-backed securities with an aggregate value $47.5 billion, increasing the pace up to $95 billion over the following three months. Employers in the U.S. added 428,000 jobs, which was in line with consensus estimates, and the unemployment rate remained unchanged at 3.6%. In Europe, the Bank of England raised its key interest rate 0.25% to 1.0%, the highest level since 2009 as they continue to face many of the same inflation and supply issues in the U.S. China reported their steepest decline on record in services PMI data for April. Composite PMI in China was already well below 50 and dropped further to 37.20.

 

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Fourth Consecutive Week of Stock Price Declines

Market Data as of Week Ending: 04/29/2022 unless noted otherwise

Equities

U.S. stock prices declined for the fourth consecutive week as the Nasdaq Composite finished the month of April down more than 13%, its worst monthly result since October 2008. More than half of the companies in the S&P 500 have reported first quarter earnings, with 80% having reported a positive earnings surprise. There were not significant differences between size and style among large and mid-cap stocks, but small sized companies generally lagged. Performance dispersion was more prominent among sectors as companies in the materials, energy, and information technology sectors outperformed. All eleven economic sectors declined for the week, most notably consumer discretionary, real estate, and financials. Developed foreign markets posted a negative weekly return but held up better than the U.S., while emerging markets reversed recent trends and finished the week with a small gain.

Bonds

U.S. Treasury yields remain volatile and have continued to trend higher as the 10-year treasury ended the week slightly higher at 2.94%. For the month of April, the 10-year treasury yield increased more than 0.5%, its largest monthly increase since December 2009, and the Bloomberg US Aggregate Bond Index declined 3.79%. Higher quality government bonds outperformed for the week while credit sensitive bonds lagged. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week above 4.3% and 7.0%, respectively.

Macroeconomic Data

Economic data releases were generally worse than expected. U.S. economic growth, as measured by real gross domestic product (GDP), came in well below expectations, declining 1.4% for the first quarter of 2022. Even after adjusting for inflation, consumer spending remains robust and increased 2.5%, but net exports detracted 3.2% from overall GDP growth. Core PCE, the Fed’s preferred inflation measure, increased 5.2%, compared to the same period last year, and is slightly lower than last month’s reading. Other economic data releases were mixed as consumer confidence narrowly declined in March and the Case Shiller Home Price Index rose 2.4% for the month of February. European GDP recorded a small positive increase of 0.2% in the first quarter as Europe is expected to announce additional sanctions on Russia. In Asia, the Bank of Japan raised its outlook for inflation and several companies warned of supply chain disruptions and an uncertain business outlook due to COVID restrictions in China.

 

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Stocks Selloff to End the Week

Market Data as of Week Ending: 04/22/2022 unless noted otherwise

Equities

U.S. stock prices posted another weekly loss, reversing trend after a solid start to the week. The S&P 500 returned -2.74%, faring slightly better than the NASDAQ which fell -3.83%. With first quarter earnings now about 20% completed, an emphasis has been placed on companies’ fundamental strength amid high inflation. Currently 79% of S&P 500 companies have beaten net income expectations which is slightly above the five-year average. In what was a mixed bag, mid-cap companies held up slightly better their large and small company peers while value stocks continued to outperform their growth counterparts. Within sector performance, communication services pulled back the most as shares of Netflix fell more than 35% for the week. The energy sector declined significantly for the week as fear regarding Chinese economic activity and its implications on demand weighed on oil prices. The traditionally defensive consumer staples sector gained ground for the week. Developed foreign markets posted a negative weekly return but held up better than the U.S., while emerging markets trailed both.

Bonds

U.S. Treasury yields continued their climb higher as concerns about inflation and the pace of interest-rate hikes drove the increase. The 10-year treasury reached its highest level in more than three years as it climbed as high as 2.95% before ending the week around 2.90%. Investment grade government bonds held up better than high yield and corporates while shorter duration fared better than long. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week above 4.2% and 6.8%, respectively.

Macroeconomic Data

Economic data releases for the week were mixed. The NAHB home builders’ index fell two points in April to 77 as higher interest rates and buyer’s affordability weighed on home-builders confidence. Existing home sales fell 2.7% in March, marking the second consecutive month of declines. The Philadelphia Fed manufacturing index declined over four points to 17.6 in April, lower than consensus expectations. The preliminary S&P Global U.S. manufacturing PMI index for April rose unexpectedly to 59.7 while the S&P Global U.S. services PMI dipped to 54.7 in April, as new orders remained strong but rising labor and input costs weighed. Chinese markets slid as concerns grew over China’s economy as Shanghai remained locked down to combat rising COVID-19 cases.

 

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Markets Kick-off Earnings Season Lower

Market Data as of Week Ending: 04/15/2022 unless noted otherwise

Equities

U.S. stock prices ended the holiday shortened week lower, led by the S&P 500’s return of -2.11%. A handful of companies kicked off earnings season which reported mixed results and weighed on investor sentiment as many are anticipating a sharp deceleration in earnings growth this quarter. In a reversal from previous weeks, small companies regained ground on their large company peers while value stocks continued to outperform their growth counterparts. Sector performance was mixed as materials, industrials and consumer staples were positive while information technology, consumer services and health care declined significantly. Energy moved slightly higher as the price of U.S. crude oil rebounded from two consecutive weekly declines and returned back above $100 per barrel. Developed foreign markets and emerging markets posted negative weekly returns, but were slightly better than the U.S.

Bonds

U.S. Treasury yields moved higher after inflation data did little to change the expectation for aggressive monetary policy tightening. The yield curve steepened some last week as the 10-year treasury increased 12bps to 2.83% while the 2-year note dipped to 2.46%. Returns for the week were mixed across quality while shorter duration fared much better. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week above 4.0% and 6.6%, respectively.

Macroeconomic Data

Economic data releases for the week left much to be digested. The NFIB small-business index fell to a one-year low of 93.2 in March as inflation weighed on sentiment. The Consumer Price Index jumped to 8.5% in March, the highest reading since 1981, as higher gas prices were a key component to the rise. Despite high inflation, U.S. retail sales rose by 0.5% in March marking the third consecutive monthly gain. The preliminary University of Michigan Consumer Sentiment Index for April rose to 65.7, showing unexpected improvement. The UK’s recovery is showing signs of weakening as inflation jumped to a 30-year high of 7.0% in March, weighing on GDP growth which slowed to 0.1% in February as construction and production output declined.

 

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Stocks Edge Lower as Fed’s Hawkishness Weighs

Market Data as of Week Ending: 04/08/2022 unless noted otherwise

Equities

U.S. stock prices ended the first full week of the quarter lower as investors brace for rate hikes and the start of first-quarter earnings season. The S&P 500 returned -1.24% for the week, erasing early week gains after the Fed’s mid-March meeting minutes revealed that policymakers were prepared to reduce the central bank balance sheet by $95B per month. Large companies generally outperformed their small company peers while the value style factor proved additive. For the second straight week, the typically defensive consumer staples, health care and utilities sectors outperformed, while information technology, consumer discretionary and communication services recorded steep losses. Developed foreign markets and emerging markets slightly underperformed the U.S.

Bonds

U.S. Treasury yields moved higher after expectations for aggressive monetary policy tightening increased. The 10-year treasury jumped 34bps to 2.71% while the 2-year note rose to 2.52%, allowing the 2s10s spread some breathing room. Returns for the week were mixed across quality while short duration fared better. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week above 3.9% and 6.5%, respectively.

Macroeconomic Data

Economic data releases were mixed during the light week. U.S. factory orders dropped for the first time in 10 months, dipping by -0.5%, but better than estimates. The ISM services index rose to 58.3% in March from 56.5%, signaling a faster expansion in the U.S. economy after it was slowed by Omicron earlier in the year. Initial jobless claims came in at a 54-year low of 166,000, well below the 200,000 that was expected and another sign of a red-hot U.S. labor market. U.S. consumer credit rose at its highest rate in 20 years to $42B in February, well above the expectations of a $15B gain. Investor sentiment in the eurozone dipped in April to its lowest level in almost two years while German factory orders fell sharply in February, reflecting a decline in foreign orders.

 

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Inflation and Russia Weigh on Sentiment as Yield Curve Inverts

Market Data as of Week Ending: 04/01/2022 unless noted otherwise

Equities

U.S. stock prices ended the week relatively flat after inflation concerns and continued Russian strikes erased mid-week gains. The S&P 500 returned 0.08% for the week, closing out its best month since December but its worst quarterly setback since early 2020. Large companies generally underperformed their small company peers while the growth style factor proved additive. Typically defensive sectors in consumer staples, health care and utilities outperformed, while cyclically sensitive sectors in financial services and industrials lagged. Higher interest rate expectations were a headwind for the information technology sector as it posted a minor gain. Energy stocks slipped as oil prices fell below $100 a barrel as the U.S. announced it would release up to 180 million barrels of oil from a strategic reserve over the next six months. Developed foreign markets and emerging markets outperformed the U.S.

Bonds

U.S. Treasury yields were mixed as the 10-year treasury fell to 2.39% while the 2-year note rose to 2.46%, this move marked the first yield curve inversion since 2019. The Bloomberg U.S. Aggregate Bond index finished out its worst quarter since late 1980, with March being the worst monthly performance for the index since July 2003. Returns for the week were mixed across quality and duration. Yields decreased for both investment grade corporate bonds and high yield corporate bonds as they finished the week at nearly 3.7% and 6.2%, respectively.

Macroeconomic Data

Economic data releases were mixed leaving investors to determine how aggressive the Fed will be. The U.S. consumer confidence index rose to 107.2 from 105.7, rising for the first time in 2022. Consumer spending rose 0.2% in February but was driven by rising prices. Personal incomes rose 0.5% in February as wages continue to increase, but not enough to offset the increase in cost of living. The PCE price index rose 0.6% in February, bringing the year-on-year increase to 6.2% – marking the biggest increase since January 1982. The U.S. added 431,000 jobs in March, slightly below the consensus estimates, but was offset by stronger than previously reported hiring in the first two months of the year. The unemployment rate fell to 3.6% from 3.8%. The ISM manufacturing index slipped to 57.1% in March, as factory activity stumbled to its lowest level in 18 months. Consumer prices in the eurozone rose to 7.5% in March as the war in Ukraine has sparked higher energy prices and rising inflation across the continent.

 

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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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