Home / Research / The Long and Short of it, week ending 23 December 2022

The Long and Short of it, week ending 23 December 2022

Posted: 29 December, 2022

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

Publication Type: Market Commentaries

Marked divergence in the weekly performance of the 3 major stock market indexes last week. The NASDAQ Composite Index strongly underperformed both the S&P 500 Index and the Dow Jones Industrial Average while the S&P 500 noticeably lagged the Dow Jones Industrial Average. Index levels were buffeted during the week by uncertainty regarding Fed monetary policy in the face of seemingly falling inflation but with data indicating a resilient job market and optimistic consumer. Stock markets fell sharply Monday, reacting to a weak retail sales release (a departure from the “bad news is good news” regime), rising Chinese Covid cases and growing recession concerns. Index levels surged Wednesday with a strong Consumer Confidence number, a much better-thanexpected Nike earning report and falling existing homes sales and prices, only to see those gains reversed Thursday on a revised-higher Q3 GDP release and continued low initial jobless claims. Friday’s PCE Price Index release moved stock prices higher with inflation levels coming in both lower than expected and lower than the previous month. Nonetheless, stock price gains were somewhat muted with prices for services continuing to show strong increases, supporting expectations of unchanged Fed monetary policy. The 10-year Treasury rate rose 26bps last with 60% of the increase coming from rising 10-year real rates. 10-year real rates now stand at 1.52% and 10-year inflation expectations at 2.23%. The U.S. dollar continued to be volatile, falling sharply on Tuesday (following the BoJ’s decision to widen the interest range on the 10-year note to +/- 50bps from +/- 25bps) and then strengthening the remainder of the week. At week’s end, the S&P 500 Index decreased 0.2% to 3,844.82, the Nasdaq Composite Index dropped 1.9% to 10,497.86, the Dow Jones Industrial Average gained 0.9% to close at 33.204.26, the 10-year U.S. Treasury rate rose 26bps to 3.75% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.4%.

Both the STOXX 600 and FTSE 100 Indexes moved higher last week with the FTSE 100 Index markedly outperforming. Both indexes moved higher Monday, propped up by rising oil and base metal prices and on expectations of rebounding Chinese demand on the back of easing Covid restrictions. The BoJ’s widening of the allowable 10-year interest rate range pressured euro zone stock prices lower Tuesday while the FTSE 100 Index registered a small gain supported by continued rising oil and base metal prices. Both indexes surged Wednesday, rallying with U.S. stock indexes and benefiting from Nike’s much better-than-expected earnings report. Those gains were partially reversed Thursday with European markets moving lower with U.S. markets (affected by a revised-higher Q3 GDP release and continued low initial jobless claims) and by a greater-than-expected contraction in UK Q3 GDP. At week’s end the FTSE 100 Index rose 1.9% to 7,473.01, the STOXX 600 index increased 0.6% to 427.45, the 10-year UK government rate increased 30bps to 3.63%, the 10-year Bund rate rose 24bps to 2.39%, the British pound weakened 0.7% and the euro strengthened 0.3%, both versus the U.S. dollar.