Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data 

• U.S. equity indices ended the week all lower. 
  • S&P 500 -1.18% Dow -0.28%, Russell 2000 -4.67%, Nasdaq -3.86%1 
    • The All-Country World Index sank 1.48%.1 
  • S&P 500 sub-sectors were mixed last week as defensive areas showed strength. 
    • Healthcare, Energy, Staples, Real Estate & Utilities were the positive sectors. 1 
    • Tech, Consumer Discretionary, & Industrials led to the downside with losses over 2.5%.1 
  • The CBOE Volatility Index (VIX) gained 8% to end above the critical 20 level. 1 

• The bond market saw yields continued their significant move higher. 
  • US 2yr +0.06% at 2.51%, 10yr +0.33% at 2.61%, 30yr +0.32% to 2.74%.1 
  • The yield curve steepened as the 10yr yield surpassed the 2yr to un-invert.1 

• Commodities as an aggregate asset class moved lower last week.
  • WTI Crude declined 1.47%.1 
  • Gold gained 1%.1 
  • The US Dollar index rose 1.22%.1 

• In our opinion, U.S. economic data was mixed last week. 
  • Unemployment claims came down to below 200k. 1 
  • Consumer credit surprised to the upside. 1 
  • The US services sector remained firmly in expansionary territory. 1 

• An index of equities outside the US (FTSE All-World ex-US) lost 1.95%.1 

Conclusion 

• US stock markets ended the week lower as US Treasury yields skyrocketed to 3yr highs on the back of the Federal Reserve’s signal of more aggressive monetary tightening. 
  • The S&P 500 slid down a little over a percent while the tech-heavy Nasdaq & small-cap tracking Russell 2000 led to the downside. 
    • The Nasdaq had its worst week since mid-March while the Russell 2000 continued its recent run of underperformance relative to the S&P. 1 
    • Both of these growth-oriented areas of the market that were darlings coming out of the initial Covid shocks of 2020 have underperformed the S&P 500 year to date by over 5%.1 

• S&P 500 subsectors finished the week mixed. 
  • Defensive areas of the market, Healthcare, Staples, Real Estate & Utilities, led to the upside along with Energy. 
    • Investors seemed to be rushing to snap up shares in co’s with reliable revenue streams last week in the face of so much uncertainty. 
  • Tech, Consumer Discretionary, & Industrials led to the downside as investors lowered future growth potential on the back on longer-term yields moving higher. 

• The US Treasury market saw the yield curve revert to upward sloping. 
  • The 10yr & 30yr issues saw yields rise around 1/3 of a percent to overtake the 2yr yield. 1 
  • The Fed’s announced of their intentions to aggressively rollback their purchases of longer-term gov’t bonds acted as gasoline in the yields of the long-end of the Treasury curve. 1
    • This will take out some significant demand for these issues which led investors to believe it will take a higher yield to replace the Fed’s synthetic demand. 
  • The widely held barometer ETF of the broad corporate bond market (LQD) ended the week down over 11% year-to-date. 1 
    • As mentioned recently, we view rising yields as an opportunity for our clients as we’ve largely been camped out in ultra-short issues with our fixed income holdings. 
  • We continue to believe as inflation comes to a peak; a phenomenal opportunity could present itself for patient investors in the fixed income portion of their portfolios. 

• Commodities as an asset class were mixed to little changed. 
  • WTI crude weakened on the back of continued Chinese covid-lockdowns. 1 
  • Gold gain a percent and remained elevated relative to its fair value model. 
  • Commodities have been rocketed higher over the last 4-6 months which has helped drive inflation even higher than it would have been on the back of Covid-era stimulus alone. 
    • As we’ve said before, the best cure to high prices is high prices; eventually, buying habits will adjust or be delayed and things will stabilize. 
• Central banks around the globe have a lot of eyes on them. 
  • More than 30 of them have already hiked by 0.50% in one go this year with many expected to follow suit; including the US Fed. 1 
  • This can have a major impact on inflation. 
    • It can also have a major impact on equities relative value and how much investors are willing to pay for shares of co’s…we continue to observe & stand ready to act. 

Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 4/8/2022  

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