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Fears of Hard Landing Send S&P 500 into Bear Market Territory

Market Data as of Week Ending: 06/17/2022 unless noted otherwise

Equities

U.S. stock prices continued their downward trajectory as persistent inflation, central bank tightening, and higher yields sent markets lower. The S&P 500 officially entered bear market territory after recording its worst week since March 2020, returning -5.75%. The percentage of S&P 500 companies trading above their 50-day moving average fell below 5% last week, the lowest level since the beginning of the pandemic. In a reversal from last week, growth stocks held up better than value and larger companies generally outperformed their small company peers. All eleven S&P 500 sectors were solidly lower, with most declining between 4 to 6%. The energy sector was the worst performer, returning -17.10%, as oil prices experienced volatility on the back of supply concerns. Developed foreign and emerging market stocks narrowly outperformed the U.S.

Bonds

U.S. Treasury yields had a choppy week, briefly touching multi-year highs before a relief rally sent the 10-year treasury yield down to 3.23%. Higher-quality government bonds outperformed while shorter durations were able to provide value. Yields on investment grade corporate bonds and high yield corporate bonds were sent higher, finishing the week at 4.8% and 8.5%, respectively.

Macroeconomic Data

Economic data releases were relatively sluggish as the Federal Reserve’s rate decision loomed large. The NFIB small-business index was unchanged in May at 93.1 as expectations for future business conditions continued to deteriorate amid persisting inflation. U.S. retail sales fell for the first time in five months, declining 0.3% in May due to fewer auto purchases. The NAHM home builders index declined for the sixth month in a row and to a two year low of 67, reflecting growing pessimism as interest and mortgage rates climb. The Federal Reserve announced a 0.75% rate hike, the largest in three decades, as the Fed continues to be aggressive in combating inflation. The Philadelphia manufacturing index contracted for the first time since May 2020, falling to -3.3 in June from 2.6. The Bank of England raised its key interest rate by 0.25%, the fifth meeting in a row in which the BOE rose rates, as inflation recently reached 9.0% in the U.K.

 

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