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

Posted: 28 November, 2022

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

Publication Type: Market Commentaries

An up-week for major stock indexes with the Dow Jones industrial Average outperforming both the Nasdaq Composite and SP 500 Indexes. Growing expectations of a more benign Fed provided support to stock prices with a growing number of investors expecting the Fed to slow its pace of rate increases beginning December when the FOMC meets next. Wednesday’s release of FOMC minutes helped firm those expectation with most members expressing the view smaller increases in rates may be appropriate. Falling but better-than-expected consumer sentiment and much better-than-expected new home sales also boosted positive sentiment. Friday saw the Dow Jones Industrial Average rise and the Nasdaq Composite and S&P 500 Indexes fall, perhaps as result of value stocks receiving a boost on hopes of strong black-Friday sales. The 10-year Treasury rate fell 14bps with 10-year real rates responsible for the decline, reversing last week’s gains and falling 14bps. At week’s end, the S&P 500 Index increased 1.5% to 4,026.12, the Nasdaq Composite Index gained 0.7% to close at 11,228.76, the Dow Jones Industrial Average rose 1.8% to 34,346.83, the 10-year U.S. Treasury rate dropped 14bps to 3.69% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.9%.

European stock indexes also moved higher last week supported by the same factors affecting U.S. indexes. Both the FTSE 100 and STOXX 600 Indexes fell Monday, affected by sharply declining oil prices. Reports of Saudi Arabia considering increasing production caused energy stock prices to freefall but denials by Saudi Arabia (after Monday’s close) pushed oil and energy stock prices sharply higher Tuesday, moving both indexes into the black. Expectations of less aggressive central bank tightening also contributed to rising index levels with Wednesday’s FOMC minutes release supporting those expectations, moving stock markets higher Thursday. Investors expect both the BoE and ECB to increase rates 50bps, not 75bps, next time they meet. The FTSE 100 Index underperformed the STOXX 600 Index mainly due to a markedly stronger British pound. Expectations of slower growth or even recession in the euro zone and the UK continued to push longer term interest rates lower. At week’s end the FTSE 100 Index rose 1.4% to 7,486.67, the STOXX 600 index increased 1.7% to 440.74, the 10-year UK government rate fell 12 bps to 3.12%, the 10-year Bund rate fell 5bps to 1.97% and the British pound and euro strengthened 1.8% and 0.8%, respectively, both versus U.S. dollar.