The Long and Short of it, week ending 11 Feb 2022

Publication Type: Market Commentaries

All three major U.S. stock indexes moved higher through Wednesday, energized by better-thanexpected earnings reports (including Amazon’s from the previous week) and buy-the-dip investor
sentiment. Thursday’s much higher-than-expected CPI release, showing CPI reaching a four-decade
high, reversed sentiment, pulling stock markets sharply lower. Sharply increased expectations of a
more aggressive Fed raising rates 50bp in March and growing expectations of rate increases at every
FOMC meeting this year drove stock prices markedly lower as investors grappled with the effects of
higher rates on stock prices and with the possibility of continued elevated inflation levels. 10-year
U.S. Treasury rates, reflecting these same concerns, moved 13bps higher through Thursday (closing
at 2.04%) as 10-year real yields rose 8bps and 10-year inflation expectations increased 5bps. Friday’s
late-afternoon White House announcement that Russia could invade Ukraine at any time diverted
investor attention from Fed policy to economic and geopolitical repercussions of an invasion,
dramatically increasing risk-off sentiment and driving stock prices sharply lower while increasing
haven investment values such as gold, U.S. Treasuries and the U.S. dollar. All three major stock
market indexes fell 1.5% or more Friday and the 10-year U.S. Treasury rate dropped 13bps to
unchanged on the week. At week’s end, the S&P 500 fell 1.8% to 4,418.64, the Nasdaq Composite
Index dropped 2.2% to 13,791.15, the Dow Jones Industrial Average decreased 1.0% to 34,737.47,
the 10-year U.S. Treasury rate was unchanged at 1.92% and the U.S. dollar (as measured by the ICE
U.S. Dollar index - DXY) strengthened 0.6%.

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The Long and Short of it, week ending 11 Feb 2022

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