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The Long and Short of it, week ending 19 August 2022

Posted: 23 August, 2022

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

Publication Type: Market Commentaries

All three major stock indexes moved lower last week with the Nasdaq Composite Index significantly underperforming the other two. Early-week sentiment of peaking inflation and a more benign Fed began reversing mid-week following Wednesday’s release of FOMC minutes. Increasing concerns the Fed may continue its aggressive tightening, perhaps hiking rates 75bps higher again in September, combined with hawkish comments from Fed officials and signs of a still resilient job market, moved stock prices markedly lower Friday. The 10-year Treasury rate, lower through Tuesday, climbed higher the rest of the week reflecting both inflation and Fed policy concerns. Similarly, the U.S. dollar powered higher last week with the DXY index increasing just shy of 2.5%. For the week, the S&P 500 Index decreased 1.2% to 4,228.48, the Nasdaq Composite Index fell 2.6% to 12,705.21, the Dow Jones Industrial Average edged lower 0.2% to 33,706.15, the 10-year U.S. Treasury rate rose 14bps to 2.98% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 2.4%.

European stock markets were mixed with the STOXX 600 Index ending the week almost a percent lower and with the FTSE 100 Index climbing just under 1%. Record high inflation in the euro zone and in the UK, combined with Wednesday’s release of FOMC minutes, added to sentiment of continued aggressive global central tightening, muting stock market performance. The FTSE 100 Index outperformed the STOXX 600 Index, benefiting from strong mining company performance and a significantly weaker British pound. The STOXX 600 Index, unlike the FTSE 100 Index, has more exposure to tech stocks with less exposure to U.S. dollar revenues. Both the 10-year UK government rate and the 10-year Bund rate moved significantly higher last week with the 10-year UK government rate rising 30bps and the 10-year Bund rate climbing 24bps. At week’s end, the FTSE 100 Index increased 0.7% to 7,550.37, the STOXX 600 Index decreased 0.8% to 437.36, the 10-year UK government rate rose 30bps to 2.41%, and the British pound and the euro weakened 2.5% and 2.2%, respectively, both with respect to the U.S. dollar.