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The Long and Short of it, week ending 02 December 2022

Posted: 06 December, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

Publication Type: Market Commentaries

Another positive week for stock indexes with Nasdaq Composite Index strongly outperforming the Dow Jones Industrial Average and the S&P 500 Index. Hawkish comments from Fed officials and unusual, widespread protests in China pressured stock prices lower Monday as investors waited for Friday’s job report, Thursday’s PCE price index release and Wednesday’s Jerome Powell speech. Basically unchanged Tuesday, all 3 major stock indexes moved sharply higher Wednesday following Fed Chair Powell’s comments at the Brookings Institution. Powell intimated December’s rate increase would likely be 50bps and, while the Fed would continue to act vigilantly against inflation, the pace of rate increases would likely slow. Thursday’s lower-than-expected core PCE price index release seemed to support investor expectations of a less aggressive Fed going forward and, at the same time, lessened downward stock price pressures resulting from Friday’s strong job report. The 10-year Treasury rate, reacting to growing expectations of more benign Fed monetary policy, fell 20bps. Interestingly, 10- year inflation expectations increased 11bps over the week slightly offsetting a 31bp decline in 10-year real rates. Similarly, the U.S. dollar significantly weakened. For the week, the S&P 500 Index increased 1.1% to 4,071.70, the Nasdaq Composite Index rose 2.1% to 11,461.50, the Dow Jones Industrial Average increased 0.2% to 34.428.95, the 10-year U.S. Treasury rate dropped 20bps to 3.49% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 1.5%.

European stock indexes behaved similarly to U.S. stock indexes though with less pronounced increases. Monday’s rare country-wide protests in China pushed stock prices lowers with increased expectations of even weaker Chinese demand. Those expectations reversed over Tuesday and Wednesday following easing Covid-related curbs in two large Chinese cities, propping up stock prices. Lower-than-expected eurozone inflation levels as well as seemingly dovish comments from Fed Chair Powell Wednesday helped support stock prices through the end of the week. Powell’s comments, however, also caused the British pound to significantly strengthen Thursday pushing the FTSE 100 Index slightly lower. Friday’s stronger U.S. jobs report – somewhat reducing expectations of a more benign Fed - seemed to depress European investor sentiment, also pushing stock prices slightly lower. At week’s end the FTSE 100 Index rose 0.9% to 7,556.23, the STOXX 600 index increased 0.6% to 443.30, the 10-year UK government rate increased 3bps to 3.15%, the 10-year Bund rate fell 15bps to 1.82% and the British pound and euro strengthened 1.6% and 1.3%, respectively, both versus U.S. dollar.