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The Long and Short of it, week ending 21 October 2022

Posted: 25 October, 2022

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

Publication Type: Market Commentaries

All 3 major stock market indexes ended the week sharply higher, increasing markedly at the beginning and at the end of the week. Better-than-expected earnings reports along with the reversal of UK tax reduction/increased spending plans helped propel stock prices sharply higher through Tuesday. Re-emerging concerns of continued aggressive Fed tightening leading to recession pushed the 10-year Treasury yield above 4.20% to an almost 15-yearhigh (almost all the increase was due to rising real rates), pushing stock prices lower Wednesday and Thursday. Reports Friday the Fed may consider slowing its pace of increases following November’s FOMC meeting (when the Fed is expected to increase the Fed fund’s target rate by 75bps) along with better-than-expected earnings reports propelled the major stock indexes over 2% higher, despite the 10-year Treasury rate remaining unchanged near4.2%. At week’s end, the S&P 500 Index rose 4.7% to 3,752.15, the Nasdaq Composite Index gained 5.2% to close at 10,859.72, the Dow Jones Industrial Average increased 4.9% to 31,083.02, the 10-year U.S. Treasury rate rose19bps to 4.22% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 1.3%.

European stock indexes moved higher as well last week, but less so than U.S. indexes, with the STOXX 600 and FTSE 100 indexes increasing more than 1%. Better-than-expected earnings reports along with the new UK Finance Minister Jeremy Hunt undoing most of the planned tax-cuts and fiscal spending helped move stock prices higher. Thursday’s resignation of UK Prime Minister Liz Truss also supported stock prices. Gains, however, were capped by continued inflation concerns with UK inflation (September YoY) once again reaching a 40-year high and with euro zone inflation maintaining record highs spurring expectations of aggressive central bank tightening. The strengthening of the British pound and the pronounced fall in 10-year gilt rates last week (reacting to the reversal of planned government policies and lessened political uncertainty) somewhat lessened expectations of a 100bprate hike by the BoE at its next meeting, lending support to UK stock prices as well. For the week, the FTSE 100Index rose 1.6% to 6,969.73, the STOXX 600 Index increased 1.3% to 396.30, the 10-year UK government rate fell38bps to 4.03%, the 10-year Bund rate increased 9bps to 2.43% and the British pound and the euro strengthened1.2% and 0.8%, respectively both versus U.S. dollar.