Weekly Market Update 04/10/2022
by Justin J. Long CFP®, on Apr 10, 2022
Welcome to April 2022, we had the start of the MLB season on Thursday with a delayed Opening Day this year, but, BASEBALLL is back! This holds even greater meaning for those of us in the Las Vegas valley, as there continues to be murmurs of the relocation of the Oakland A's to our city. Spring officially sprung with baseball in full gear and temperatures here reaching up into the 90's. How do you measure when spring has officially arrived?
And now on to the recap of this week:
Week in Review: Growth stocks fall amid steep rise in long-term rates
The growth stocks -- small and large -- took it on the chin this week, as the 10-yr yield jumped 34 basis points to 2.71%. The Nasdaq Composite (-3.9%) and Russell 2000 (-4.6%) fell more than 3.5%, the S&P 500 fell 1.3%, and the Dow Jones Industrial Average fell 0.3%.
The primary catalyst for interest rates was Fed Governor Brainard's (FOMC voter) expectations for the Fed's balance sheet to shrink considerably more rapidly than in the previous recovery, starting as early as May.
The March FOMC Minutes elucidated Mr. Brainard's hawkish mindset with the following note: Participants generally agreed it would be appropriate to reduce the balance sheet by $95 billion per month (about $60 billion for Treasury securities and about $35 billion for agency MBS) and that one or more 50 basis point increases in the fed funds rate could be appropriate at future meetings.
Shorter-dated rates pushed higher, too, with the 2-yr yield rising ten basis points to 2.52% amid rate-hike expectations. Longer-dated rates were further boosted by the March ISM Non-Manufacturing Index, which showed the Prices Paid Index (83.8%) hit its second-highest reading ever.
Essentially, the Fed news exacerbated concerns about the central bank potentially making a policy mistake that sends the economy into a recession, which would lower earnings prospects and valuations. The growth-stock valuations were pressured by the rapid rise in rates this week.
The S&P 500 information technology (-4.0%), consumer discretionary (-3.3%), and communication services (-2.7%) sectors, which are home to the mega-caps, were influential weights on the benchmark index. The industrials sector (-2.6%) was also weak amid continued bleeding in the transportation space.
Conversely, the energy sector (+3.2%) joined the defensive-oriented health care (+3.4%), consumer staples (+2.7%), utilities (+1.9%), and real estate (+0.8%) sectors in positive territory for the week.
Separately, it's worth reminding readers that the growth stocks did catch a speculative bid on Monday after Elon Musk disclosed a 9.2% stake in Twitter (TWTR). Mr. Musk was subsequently named to the company's Board of Directors and reclassified his stake to an active position.
The S&P 500 ended the week below its 200-day moving average (4493).
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As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat.
Justin J. Long CFP®
Diazo Wealth Group
Upcoming Economic Calendar
Source: 1. FactSet
Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
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