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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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