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Bad news for the economy is good news for stocks
Signs that growth and inflation might be moderating helped stocks rally sharply over the week, lifting the S&P 500 out of bear market territory. With the exception of energy, all sectors in the index recorded strong gains. Several economic data signaled that the Fed’s monetary tightening was having the intended effect of slowing the US economy and moderating inflation. E.g US home sales fell to their lowest level in May since June 2020, the S&P Global’s index of June manufacturing activity came in well below forecasts (52.4 versus roughly 56) while the University of Michigan’s of June consumer sentiment was revised down to 50.0, its lowest level in records dating back over four decades. On Wednesday and Thursday, Fed Chair Powell testified before Congress that inflation expectations appeared to remain anchored. His comments, along with the weaker-than-expected economic readings, briefly pushed the yield on the benchmark 10-year Treasury note near 3.0%, down significantly from the previous week’s peak of nearly 3.5%. Shares in Europe snapped three weeks of losses as signs that the economy is slowing cast doubt on whether central banks would seek to increase interest rates aggressively. Chinese stock markets advanced on stimulus hopes after President Xi Jinping pledged to roll out more measures to support the economy and minimize the impact of COVID-19. Cryptos have moved sharply higher, with bitcoin +20% and eth +40% from last Saturday's lows.
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Stocks suffered their worst week in six months as an avalanche of geopolitical and macro-economic headlines crossed paths with an ugly technical situation. The S&P 500, Nasdaq and Russell 2000 indices all fell by over 3%, while the Dow Jones shed 2.37%, erasing most of its year-to-date gains. Ongoing uncertainty around trade policy remained a focal point throughout the week. Macro data shows manufacturing growth slowing while services activity is accelerating. The U.S. economy added 151,000 jobs in February, slightly below expectations but ahead of January’s reading of 125,000. In Europe, the STOXX Europe 600 Index ended 0.69% lower, snapping 10 weeks of gains.
