Home / Research / The Long and Short of it, week ending 24 June 2022

The Long and Short of it, week ending 24 June 2022

Posted: 28 June, 2022

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

Publication Type: Market Commentaries

A sharp reversal higher for all 3 major stock indexes last week with yhr Nasdaq Composite Index outperforming both the S&P 500 Index and the Dow Jones Industrial Average. All 3 indexes moved higher by 2% or more Tuesday nd then rose another 3% or more on Friday. Growing expectations of the possibility of a recession drove investor sentiment last week, pushing markets higher on the belief the Fed’s aggressive battle against inflation will lead to lower rates sooner than expected. Fed Chairman Powell’s testimony before Congress Wednesday and Thursday affirmed the Fed’s commitment to strongly fight inflation even with the odds of a soft landing decreasing. Friday’s weak economic data releases added to this sentiment with the PMI Composite reaching a 5-month low and with he University of Michigan Consumer Sentiment recording another all-time low. The 10-year Treasury rate decreased 9bps last week, with almost all the decline coming from falling real rates. At week’s end, the S&P 500 Index rose 6.5% to 3,911.74, the Nasdaq Composite Index gained 7.5% to close at 11,607.62, the Dow Jones Industrial Average increased 5.4% to 31,503.71, the 10-year U.S. Treasury rate fell 9 bps to 3.14% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.5%.

European stock markets also ended the week higher but markedly underperformed U.S. stock markets. Early week trading saw both the STOXX 600 and the FTSE 100 Indexes move higher Monday and Tuesday and then back to unchanged on the week through Thursday. Monday’s and Tuesday’s relief rally was replaced by investor concern of slowing growth or recession in the face of global aggressive central bank tightening. Sharply falling oil and metal prices added to these concerns, pushing energy and mining stocks sharply lower. Weaker-than-expected PMI releases for the euro zone, Germany and France and 40-year high UK inflation levels also contributed to lower stock prices Wednesday and Thursday as did Fed Chairman Powell’s testimony before Congress reaffirming the Fed’s resoluteness to fight inflation even with diminishing chances of a soft landing. Sentiment changed, however, Friday with both the STOXX 600 and FTSE 100 indexes increasing over 2.5%. On the back of strong gains in U.S. markets, increasing expectations of peaking inflation brought about by central bank induced slowing growth led to increasing sentiment of lower rates sooner than expected, driving stock prices higher. Reflecting this sentiment, 10-year interest rates moved lower in the UK and Germany with the 10-year UK government rate falling 19bps and the 10-year Bund rate dropping 23bps. At week’s end, the FTSE 100 Index increased 2.7% to 7,208.81, the STOXX 600 Index rose 2.4% to 412.93, the 10-year UK government rate fell 19bps to 2.31%, and the euro and the British pound strengthened 0.5% and 0.3%, respectively, both with respect to the U.S. dollar.