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The Long and Short of it, week ending 08 April 2022

Posted: 11 April, 2022

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

A down week for U.S. stock markets with the Nasdaq Composite Index significantly underperforming the Dow Jones Industrial Average and, to a lesser extent, the S&P 500 Index. The underperformance of Tech/growth stocks vis a vis value/cyclical stocks last week followed statements by Fed President Brainard Tuesday and the release of FOMC minutes Wednesday both strongly suggesting the Fed will act aggressively to subdue current high levels of inflation. Anticipated Fed action included 50bp rate hikes 1 or more times and an immediate $95 billion reduction in the Fed’s balance sheet in May. 10-year U.S Treasury rates soared as result, increasing more than 30bps over the week to finish at a 3-year high and, in the process, punishing tech/growth stocks. While most of the increase in the 10-year U.S. Treasury rate came from a rise in real rates, it’s interesting to note that 10-year inflation expectations increased 6bps over the week to 2.88%. At week’s end, the S&P 500 Index decreased 1.3% to 4,488.28, the Nasdaq Composite Index fell 3.9% to 13,711.00, the Dow Jones Industrial Average edged 0.3% lower to 34,723.03, the 10-year U.S. Treasury rate jumped 32bps to 2.70% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.32%.

European markets finished the week higher with, as in the U.S., value/cyclical stocks outperforming tech/growth stocks. Both the STOXX 600 and FTSE 100 Indexes moved higher the first two days of the week (seemingly impervious to increased sanctions against Russia) and both moved lower Wednesday and Thursday following hawkish comments from Fed Governor Brainard Tuesday and following Wednesday’s release of the FOMC minutes. FOMC minutes revealed the Fed was strongly considering raising rates 50bps at one or more meetings and would begin to reduce its balance sheet beginning in May, increasing expectations of a recession in the U.S. The FTSE 100 Index outperformed the tech-heavy STOXX 600 Index, benefiting from strong energy, mining and banking stock performance. The 10-year UK government rate and the 10-year Bund rated increased 14bps last week. At week’s end, The FTSE 100 Index rose 1.7% to 7,669.56, the STOXX 600 Index increased 0.6% to 460.97, he 10-year UK government rate increased 14bps to 1.75%, the Euro and British pound weakened 1.6% and 0.6%,respectively, both with respect to the U.S. dollar.