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The Long and Short of it, week ending 25 Mar 2022

Posted: 29 March, 2022

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

Another up-week for U.S. stock markets with growth/tech stocks outperforming value/cyclical stocks. As in previous weeks, volatility remained high with the all three major stock indexes experiencing +/- 1% moves 3 days last week. Stock prices moved lower Monday following Fed Chair Powell’s comments inflation was too high and the Fed would not hesitate to raise rates by more than 25bps if deemed necessary. Stock markets reacted positively to these comments the remainder of week, however, choosing to interpret the comments as a vote of confidence on the ability of the U.S. economy to withstand larger rate increases. Stock markets did move lower with strongly increasing oil prices (Monday and Wednesday), perhaps indicating investor concerns of stagflation.The 10-year Treasury rate moved markedly higher last week, jumping 33bps, propelled by Chairman Powell’s hawkish comments. Interestingly, though, 10-year inflation expectations continued to move higher, climbing 8bps to just under 3% while 10-year real rates increased 25bps (to -0.5%), comprising the remainder of the 10-year Treasury rate increase. At week’s end, the S&P 500 Index increased 1.8% to 4,543.04, the Nasdaq Composite Index rose 2.0% to 14,169.30, the Dow Jones Industrial Average increased 0.3% to close at 34,861.7, the 10-year U.S. Treasury rate increased 33bp to 2.49% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.6%.

European stock markets diverged slightly last week with the FTSE 100 Index finishing higher on the week and the STOXX 600 Index falling. The Russia-Ukraine war continued to weigh on investor sentiment particularly with G-7, European Council and NATO meetings occurring mid-week. A 30-year high in UK CPI (reported Wednesday) along with continued high German PPI (reported Monday) capped stock market gains with increasing expectations of more BoE tightening and the onset of ECB tightening. European efforts to greatly reduce Russian oil and gas imports helped move oil prices higher throughout last week, adding to stagflation concerns but also supporting FTSE 100 index performance due to its energy/oil company exposure. ECB President Lagarde’s comments Monday suggesting the ECB will refrain from increasing rates in the immediate future due to the Russia-Ukraine war also may have increased stagflation concerns, negatively affecting euro zone stock market performance. Both the 10- year UK government rate and the 10-year Bund rate rose 20bps over the week with the 10-year Bund rate closing just under 0.6%. At week’s end, The FTSE 100 Index increased 1.1% to 7,538.35, the STOXX 600 Index decreased 0.2% to 453.55, the 10-year UK government rate increased 20bps to 1.70%, the Euro weakened 0.7% and the British pound was unchanged, both with respect to the U.S. dollar