Market’s cooled off last week – and continue to pull back this morning – as sentiment from contrarians to Fed rate hikes changed their tune. Inflation persists, and many seem to agree that aggressive measures need to take place. Ironically, when you aggressively increase the money supply by more than 40% in a 2-year period, you must also aggressively attempt to combat the inflation created by said printing of money. Strange how that works…
Ukrainian President Zelensky, continues his plea for military aid, along with further claims of war crimes committed by Russian troops and mercenaries. Sparking debate of further US and NATO involvement.
Economically, sanctions place on Russia begin to garner clarity for the US on how exactly these sanctions could affect our economy.
Russia has been placed by S&P Global into a selective default category on the foreign debt it owes. This is due to sanctions which prevent Russia from accessing any US dollars it previously possessed that are held in American banks. Likewise, sanctions have rendering the Russian Ruble nearly worthless – making any debt payment it can make in Rubles much less meaningful. Russia, however, did attempt to make a payment in Rubles to offset its $650 million owed to JPMorgan Chase, for example, but Rubles cannot be accepted as payment. As you can imagine, this will likely result in a hit to the US economy as the impact of sanctions continue to be illuminated.
Below is your Weekly Market & Economic Summary by the numbers.
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Weekly Market Summary
- Global Equities: The second quarter of 2022 started out a bit rocky, as equity markets failed to break out above technical resistance, with tech and growth stocks once again showing relative weakness. The S&P 500 finished with losses of -1.2%, the Dow Jones Industrial Average was relatively flat at –0.2%, and the Nasdaq fell -3.9%. Developed International Stocks were also in the red with losses of -1.9% and Emerging Markets dipped -2.1%.
- Fixed Income: 10-Year Treasury yields were pushed higher by hawkish Federal Reserve comments, reaching 2.7% for the first time since March of 2019. High yield bonds also struggled during the week with a -2.1% decline, bringing year-to-date losses for the iShares US High Yield ETF (HYG) to -6.7%. High yield bond funds and ETFs have seen record-setting outflows this year but were able to attract a modest $296 million in inflows during the weekly period ended April 6th.
- Commodities: The release of supply from the US strategic oil reserve led to a weekly decline in prices, bringing West Texas crude back under $100 per barrel to trade around $97 as of Friday afternoon. US oil and gas drillers added 16 active rigs during the week, bringing the rig count to 689, the highest since March 2020. Gold prices were up modestly, rising to just under $1950/oz.
Weekly Economic Summary
- Fed Hawks: While it is no secret that rate hikes are in the cards, some investors were holding out contrarian hopes of a “dovish pivot” – the sentiment by an economist who suggests that inflation has few negative effects or calls for quantitative easing – in Fed policy, in the form of smaller rate hikes rather than the 50-basis point increases currently priced in. Those hopes faded this week with comments from Federal Reserve Governor Lael Brainard, considered to be among the most dovish of Fed members. Governor Brainard expressed concerns that inflation was too high and suggested the Fed could be more aggressive than forecast in reducing its balance sheet. Brainard’s comments were reinforced later in the week by St. Louis Fed President James Bullard, known for his hawkish views, who argued for a 3% Fed Funds rate by year end. The current Federal Funds rate sits at .33% as of Friday (4/8/22).
- End of an Era for Mortgages: The average 30-year fixed rate mortgage hit 5% for the first time in a decade this week, a move that will undoubtedly cool the scorching hot housing market. Demand for homes has kept up recently, as buyers with rates locked in desperately started bidding wars lest they lose their rate locks. As those rates expire, demand has decreased. MBA Mortgage applications were down -6.3% during the week and refinancing applications declined -10%.
- Jobless Claims Fall: Weekly initial claims for unemployment fell to 166,000 last week, the lowest level since 1968. The prior week was revised downward from 202,000 to 171,000. Full employment puts additional pressure on the Fed to act more quickly and more aggressively in its effort to contain inflation.
Market Data Supplied By Halon Investment Management.
