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The Long and Short of it, week ending 27 May 2022

Posted: 30 May, 2022

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

Publication Type: Market Commentaries

U.S. stock markets powered higher last week with all three major stock market indexes rising more than 6%.Stronger-than-expected retail earnings reports, a no-surprise release of Fed minutes, increased householdspending and a slight decline in the Fed’s preferred inflation index all contributed to last week’s performance. TheDow Jones Industrial Average increased every day last week while the S&P 500 and Nasdaq Indexes moved higher every day but Tuesday when Snap Inc plummeted 43% on profit and revenue warnings. Stock markets moved higher despite some weaker-than-expected economic releases, namely much lower-than-expected growth in new home sales, a larger contraction in Q1 GDP than estimated last month and an over 10-year low in consumer sentiment. 10-year U.S. Treasury rates moved 5bps lower last week with the move lower coming from falling 10- year real rates (down 11bps to 9bs). 10-year inflation expectations rose 6bps to 2.65%. At week’s end, the S&P 500 Index increased 6.6% to 4,158.24, the Nasdaq Composite Index gained 6.8% to close at 12,131.13, the Dow Jones Industrial Average rose 6.2% to 33,213.55, the 10-year U.S. Treasury rate decreased 5 bps to 2.74% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 1.4%.

European stock markets moved higher as well last week but less so than U.S. markets, with both the STOXX 600 and FTSE 100 indexes increasing more than 2.5%. Banking and mining stocks buoyed markets throughoutthe week though the UK’s plans for a windfall tax on excess profits from utilities and energy companies pushed energy-related stocks lower during the week. Better-than-expected euro zone retail sales, a slight increase in German GDP and as-expected U.S. Fed minutes also provided support for stock prices as did strong U.S. tech stock performance (particularly on Thursday and Friday) and the UK’s announcement of a support package for households struggling with energy bills. The 10-year UK government rate and the 10-year Bund rate rose slightly, each increasing 2bps. At week’s end, the FTSE 100 Index increased 2.6% to 7,585.46, the STOXX 600 Index rose 3.0% to 443.93, the 10-year UK government rate rose 2bps to 1.91%, and the euro and the British pound strengthened 1.6% and 1.0%, respectively, both with respect to the U.S. dollar.