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Stocks, bonds & cryptos retreat on rates fears
US equity markets gave back a portion of the previous week’s strong gains after Saint Louis Fed’s President James Bullard appeared to dampen hopes that inflationary pressures had peaked. “The idea that inflation has peaked is…not statistically really in the data at this point,” Bullard told the Wall Street Journal, while stating that he was likely to vote in favor of another 75-basis-point increase in the Fed target rate at the next FOMC policy meeting. Tech and communications stocks underperformed within the S&P 500 Index, with the latter dragged down by a sharp decline in Facebook parent Meta Platforms. Trading was subdued while volatility spiked on Friday as USD 2.3 trillion in options expired. Some upward surprises in the week’s US economic data (retail sales, industrial production, jobless claims) may have fueled rate fears, even as they offered hope that the economy would avoid a recession. The US 10-year yield spiked to near 3.0% for the first time since July 21. Shares in Europe pulled back as Eurozone inflation hit a record 8.9% in July while German PPI rose 37.2% from a year earlier, driven by strong increases in natural gas and electricity costs. Japanese shares were solidly higher as the yen weakened to JPY 136.7 against dollar. China’s stock markets posted a loss for the week in reaction to weak economic data and elevated levels of COVID cases. Cryptos were hammered lower as the week progressed with ETH and BTC down around 12%. The dollar strengthened.
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Most US equities indexes ended the week lower, although the tech-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. The Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. Growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12%) and Alphabet (8.4%). On the macro-economic side, stagflation fears started to rise once again. Indeed, YoY CPI and PPI both accelerated. Meanwhile overall macro surprises disappointed for the fourth week in a row: on Thursday, the Labor Department reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000.